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EBITDA
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Pronunciation: e-bit-dah • Hear it!
Part of Speech: Noun
Meaning: A company's Earnings Before Interest, Taxes, Depreciation and Amortization; a gross measure of a company's profitability that favors gross revenues (before deducting these costs) over net revenues (after deducting them). Some call it "earnings before all the bad stuff".
Notes: EBITDA is used to compare profitability between companies without taking into consideration financing and accounting actions. It allows many discretionary inclusions and exclusions which may change from one reporting period to another. Hence it must be used with a good deal of prudence.
In Play: EBITDA is treated with great cynicism today: "[B]ecause [the] definition of EBITDA isn't enforced by a standards-making body, companies can be as loosey-goosey about it as they have been in concocting pro formas." (David Simons, Forbes.com, May 3, 2001) EBITDA does, however, have its uses in finance: "We just bought a company with negative net income but a sensational EBITDA because we could see ways to dramatically reduce expenses."
Word History: EBITDA first came into common use in the financial world with the leveraged buyouts of the 1980s, when it was used to indicate the ability of a company to pay off debt. As time passed, it became popular in industries with expensive assets that had to be written off over long periods of time. EBITDA is now commonly quoted by many companies, especially in the tech sector–whether warranted or not.
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