EBITDA — earnings before interest, taxes, 📝depreciation, and amortization — is a measure of a company's core operating profitability that strips out financing decisions, tax jurisdiction effects, and non-cash accounting charges.
Because it excludes interest and taxes, EBITDA lets investors and acquirers compare operating performance across companies with different capital structures or tax situations; excluding depreciation and amortization further removes distortions from how a company chooses to account for its past capital investments, rather than what it's earning today. Its most common uses are in leveraged buyout and 📝private equity analysis, where it approximates the cash flow available to service acquisition debt, and in valuation multiples like EV/EBITDA. The metric is widely criticized for the same reason it's useful — by excluding real cash costs like debt service and capital expenditure, it can flatter a company's underlying financial health if used without complementary cash-flow measures.