Investors use earnings before interest, taxes, and amortization (EBITA) as a measure of a company’s profitability. It is beneficial when comparing one firm to another in the same industry. It can also offer a more realistic picture of a company’s true performance over time in some situations. Another comparable metric includes depreciation in the list of elements that must be removed from the total earnings. Earnings before interest, taxes, depreciation, and amortization (EBITDA).
EBITDA, or earnings before interest, taxes, depreciation, and amortization, is a measure of a company’s overall financial performance and is used as an alternative to net income in some circumstances.
EBITDA, however, can be misleading because it strips out the cost of capital investments like property, plant, and equipment.
This metric also excludes expenses associated with debt by adding back interest expense and taxes to earnings. Nonetheless, it is a more precise measure of corporate performance since it is able to show earnings before the influence of accounting and financial deductions.