EBITDA

DEFINITION

EBITDA strips out non-operating costs (interest, taxes) and non-cash charges (depreciation, amortization) from net income to give a rough proxy for operating cash generation. It is not defined by GAAP — the SEC treats it as a non-GAAP measure subject to Regulation G. 'Adjusted EBITDA' adds further adjustments (stock comp, restructuring, M&A costs) and varies by company.

WHY IT MATTERS FOR RETAIL INVESTORS

EBITDA's strength is comparability across companies with different capital structures and tax regimes. Its weakness, made famous by Charlie Munger, is that depreciation represents real economic wear on the asset base — ignoring it overstates true profitability for capital-intensive businesses. Read EBITDA alongside capex; a company with EBITDA of $1B and capex of $1B is not generating cash.

RELATED TERMS

• Non-GAAP Measures
• EPS