What You Need to Know About Justifying Your EBITDA

When it comes to doing business, the goal is always to make a profit. But how can you know for sure if your company is truly profitable? One of the most important measures you’ll need to keep in mind is EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. Let’s take a closer look at what EBITDA is and why it matters when justifying your profitability.

What Is EBITDA?

EBITDA is an acronym that stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s one of the most important measures used to assess a company’s financial performance because it provides an accurate picture of a company’s operating performance and cash flow without taking into account non-cash expenses or capital structure. In other words, EBITDA shows how much money the company would have earned if it was not making interest payments on debt or paying taxes.

Why Is EBITDA Important?

EBITDA helps investors determine whether or not a company can generate enough cash flow to cover its operational costs and still remain profitable after accounting for all expenses. This helps them decide whether investing in a particular company is worth their time and money. It also makes it easier for companies to compare their financial performance against that of their competitors since all companies are required by law to calculate their EBITDA in the same way.

How Can You Calculate Your Company’s EBITDA?

Calculating your company’s EBITDA requires you to add up all of your operating income (the income generated from your core business activities) as well as any other income sources such as interest and dividends. Then subtract any applicable taxes and any non-cash expenses such as depreciation or amortization from this number. The resulting figure will be your EBITDA. For example, if your operating income was $100 million and you had $20 million in taxes and $10 million in non-cash expenses, then your EBITDA would be $70 million ($100 million + $20 million – $10 million).

Conclusion

When it comes to assessing the profitability of your business, understanding exactly what goes into calculating your company’s Earnings Before Interest, Taxes, Depreciation, and Amortization—or EBITDA—is key. Knowing how much money you could have made if you weren’t making interest payments on debt or paying taxes can give you valuable insight into how profitable your business really is—and whether or not investing more time or money into growing the business may be a wise decision in the long run. As long as you understand what goes into calculating your company’s EBITDA, determining whether or not it makes sense to invest more time and money into growing can be easy!