Profitability · updated October 21, 2026
What is EBITDA and how is it calculated
EBITDA is the profit the business makes from its operations before you subtract interest, tax and the accounting charges for wear and tear on equipment and buildings. It is close to the cash operations produce, but it does not subtract investment.
EBITDA formula
- Operating profit
- Sales minus running costs.
- Depreciation and amortization
- The part of the cost of equipment, buildings or licenses charged as an expense each year. No cash leaves the company now.
Worked example
A company has operating profit of $4 billion and amortization of $1 billion.
Operations produce around $5 billion a year, before investment, interest and tax.
How to read EBITDA
EBITDA is mostly used for comparisons (EV/EBITDA) and for debt (debt / EBITDA), because it does not depend on how the company is financed.
When EBITDA can fool you
Investment is missing: for a company that must keep replacing equipment, EBITDA looks much better than the cash left over. "Adjusted" EBITDA: companies strip out costs they call unusual; use the unadjusted figure.
Related terms
Questions about EBITDA
Is EBITDA the same as cash?
No. You still need to subtract investment, interest, tax and money tied up in inventory. Free cash flow tells you how much is really left.
These explanations are for information only. They are not a recommendation to buy or sell.
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