Why is EBITDA important for your company or startups?

 

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>> EBITDA ( Earnings Before Interest, Taxes, Depreciation, and Amortization ). is important for several reasons. 

EBITDA is an acronym for earnings before interest, taxes, depreciation and amortization. The EBITDA formula helps define a company’s profitability. Here’s what each term means when broken down:

What is the meaning of EBITDA ?

Earnings: The money your business brings in during a certain period of time, typically measured in months or quarters

Interest: Money paid to lenders, in addition to a loan’s principal. This information typically can be found on an income statement.

Taxes: Any local, state or federal taxes due as part of your business's activities

Depreciation: Reductions in the value of existing office supplies, inventory or other capital expenditures.

Amortization: A calculation that measures reductions in loan payment totals over time, as well as reductions in the value of intangible assets, such as proprietary software or other nonphysical goods. The latter is akin to depreciation but applied typically for nonphysical items

>> This metric can be used by a company’s financial team, as well as its investors, analysts or other financial professionals who may want to evaluate the company’s cash flow versus that of its competitors.

>> Certain nonoperating expenses, like taxes, interest expenses and depreciation can vary so widely between businesses, industries and geographic regions that comparing one business to another can be tough to do. 

>> That’s why EBITDA exists: so there’s an easy way to compare raw earnings within your own business over time,

 as well as to determine how you stack up alongside your industry peers. 

>> Plus, lenders may consider your company’s EBITDA when vetting you as a prospective borrower.