Dictionary / EBITDA
What does EBITDA mean in accounting?
Quick definition
Accrual & timingProfit from operations before interest, taxes, depreciation, and amortization.
Read more below
You will not post an EBITDA account. It is a number you calculate from the income statement, usually when a buyer, a lender, or a valuation conversation asks for it.
Examples
Add-backs on a coffee shop P&L
You run a coffee company. The month's net income is $2,400. The profit and loss also shows $180 of interest on the equipment loan and $220 of depreciation on the espresso machine. Add those back and EBITDA is $2,800. If you also wrote down a franchise fee, add that amortization too. You will not find an EBITDA report in QuickBooks Online or Xero; you add the lines from the profit and loss.
Positive EBITDA is not cash you can spend
You run a clothing store. EBITDA for the year looks healthy because you added back depreciation on fixtures and interest on a renovation loan. Those costs still happen: the fixtures wear out, and the bank still gets paid. Do not treat the EBITDA figure as cash in checking. Use the cash-flow statement to see what actually moved.
Why it matters
You will not compute this most months. It shows up when someone compares shops or sizes a loan or a sale. Treating it as cash you can spend ignores equipment you will have to replace and interest you still pay. Read net income and the cash-flow statement alongside it.
Further reading
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What does EBITDA stand for?
Earnings before interest, taxes, depreciation, and amortization. You start from net income and add those four items back.
Is EBITDA the same as cash flow?
No. It ignores changes in accounts receivable, inventory, and bills, and it ignores equipment you still have to replace. Use the cash-flow statement for cash.
Is EBITDA the same as net income?
No. Net income is the leftover after every expense. EBITDA puts interest, tax, depreciation, and amortization back in so you can compare operating results.
Do I need EBITDA every month?
Usually not. Compute it when a lender, a buyer, or a valuation conversation asks. For the monthly close, read the income statement and the bank reconciliation first.