EBITDA and EBITA

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What is EBITDA?

Earnings before interest, tax, depreciation and amortisation (EBITDA) tries to achieve this by taking operating profit and adding back two subjective costs: depreciation and amortisation. Even though these charges can be arbitrary sometimes, EBITDA helps to reflect the wearing out of fixed assets over their “useful economic lives”.

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This life is determined by the directors, based on how long they think an asset will generate income. But critics of EBITDA say that in a capital-intensive industry it is misleading to take out fixed (long-term) asset costs altogether.

What is EBITA used for?

In finance, EBITA stands for earnings before interest, tax and amortisation. EBITA refers to a company’s earnings before the deduction of interest, taxes and amortisation expenses.

It is a financial indicator commonly used as a measure of efficiency and profitability, and can be used to compare one company’s operating profitability and overall value to another. It is often used as a means of indicating overall cash flow.

EBITA vs EBITDA

EBITDA goes further than EBITA by taking operating profit and adding the depreciation in value of tangible assets owned by the company into the formula. This is particularly useful for firms evaluating utilities and telecommunication companies, as these hold highly depreciative assets on their books

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Category: Financial Glossary

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