Earnings Before Interest, Taxes, Depreciation and Amortisation — a measure of core operating profit.
EBITDA strips out the accounting complexities and asks: ignoring how you're financed, how you're taxed, and how you account for your assets — is the actual business making money? It's what you'd earn if you had no debt, paid no tax, and nothing wore out. Analysts use it to compare businesses fairly, regardless of their financing structure.
EBITDA = Net Profit + Interest + Taxes + Depreciation + AmortisationWhen someone is buying or valuing a business, they often use EBITDA as the baseline. "The business is worth 5x EBITDA" means the purchase price is five times the annual EBITDA. If your EBITDA is £200,000, a buyer might offer £1,000,000. Understanding your EBITDA helps you understand what your business is worth.
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A business has £800,000 revenue. After costs, net profit is £40,000. But after adding back depreciation (£30,000), interest (£25,000), and tax (£15,000), EBITDA is £110,000 — a much stronger picture of operating performance.
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No. EBITDA adds back interest, tax, depreciation and amortisation to net profit. It's always higher than net profit. It's a measure of operating performance, not actual cash earned.
EBITDA allows comparison across companies with different capital structures and tax situations. Two businesses in the same industry with identical operations but different debt levels will have very different net profits — EBITDA shows what the underlying business is generating.
Yes, particularly if you're planning to sell or raise investment. It's also useful for tracking operational performance over time, separate from changes in your financing or tax situation.