Finance · business glossary
What is EBITDA?
By Shivam Bhandari · Reviewed 31 October 2026 · How we write
definition
Earnings before interest, tax, depreciation, and amortisation — a measure of operating profitability that strips out financing and accounting decisions to make businesses easier to compare.
EBITDA explained
EBITDA stands for earnings before interest, tax, depreciation and amortisation. It approximates the profit generated by day-to-day operations, ignoring how the business is financed and some accounting charges.
formula
EBITDA = Net profit + Interest + Tax + Depreciation + Amortisation
example
Net profit ₹10 lakh + interest ₹3 lakh + tax ₹4 lakh + depreciation ₹5 lakh = EBITDA of ₹22 lakh.
why it matters
Investors and lenders use it to compare operating performance across companies and to value businesses (for example, ‘8 times EBITDA’).
common mistake
Treating EBITDA as cash. It ignores capital spending, working capital and debt repayments, which all use real cash.
Frequently asked questions
What is EBITDA?
Earnings before interest, tax, depreciation, and amortisation — a measure of operating profitability that strips out financing and accounting decisions to make businesses easier to compare. EBITDA stands for earnings before interest, tax, depreciation and amortisation. It approximates the profit generated by day-to-day operations, ignoring how the business is financed and some accounting charges.
How do you calculate EBITDA?
EBITDA = Net profit + Interest + Tax + Depreciation + Amortisation. Net profit ₹10 lakh + interest ₹3 lakh + tax ₹4 lakh + depreciation ₹5 lakh = EBITDA of ₹22 lakh.
Why does EBITDA matter?
Investors and lenders use it to compare operating performance across companies and to value businesses (for example, ‘8 times EBITDA’).
What is a common mistake with EBITDA?
Treating EBITDA as cash. It ignores capital spending, working capital and debt repayments, which all use real cash.
Related terms
Net margin
The percentage of revenue left as actual profit after every cost — direct, overhead, interest, and tax — has been subtracted.
Depreciation
The accounting practice of spreading the cost of a long-lasting asset (like machinery) across the years it's actually used, rather than expensing it all at once.
Valuation
An estimate of what a whole business is worth, used when raising investment, selling, or bringing in a partner.