Definition
EBITDA approximates operating profit before interest, taxes, depreciation, and amortization. It is not the same as cash flow.
Formula
EBITDA = operating income + depreciation + amortization
Example
If operating profit is $2M and depreciation/amortization is $300k, EBITDA is about $2.3M.
How to use it
- EBITDA is useful for comparing operating performance across firms.
- It excludes capital intensity and working capital timing effects.
- Use EBITDA margin to compare profitability across different revenue scales.
- Pair EBITDA with cash flow to avoid overstating performance.
Common mistakes
- Treating EBITDA as cash flow (working capital and CapEx matter).
- Ignoring stock-based compensation and other non-cash costs when they are material.
- Using EBITDA without noting revenue recognition or capitalization policies.
Why this matters
This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.
Practical checklist
- Write a 1-line definition for "EBITDA" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Sanity-check with a related calculator from the same category on MetricKit.
- Read the related guide (e.g., Valuation modeling hub: WACC, DCF, multiples, and equity value) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- Real Return (Inflation-adjusted) Calculator: Convert nominal return into real return given an inflation rate (and compare the difference).
- Deferred Revenue Rollforward Calculator: Bridge billings to recognized revenue by rolling deferred revenue forward for a period.
- Break-even Revenue Calculator: Estimate the revenue needed to break even given fixed costs and gross margin.
- NPV Calculator: Calculate net present value (NPV) from initial investment, annual cash flow, years, and discount rate.
- IRR Calculator: Estimate internal rate of return (IRR) for an investment using yearly cash flows.
Guides
- Valuation modeling hub: WACC, DCF, multiples, and equity value: A practical hub for valuation modeling: estimate a discount rate (WACC), run a simple DCF with sensitivity analysis, and translate enterprise value to equity value.