What Is EBITDA?

EBITDA stands for earnings before interest, taxes, depreciation and amortization. It is a measure of operating profit built by starting with a company's reported profit and adding back four items, on the theory that those four strip out financing structure, tax jurisdiction and past accounting decisions, leaving something closer to the cash the core business actually generates.

How it's calculated#

The most common route to EBITDA in practice is not adding four separate items to net income; it is starting from operating income (also called EBIT) and adding back just depreciation and amortization, since operating income already excludes interest and taxes by definition. Either path lands on the same number:

EBITDA = Operating income + Depreciation and amortization

EBITDA is not a line a company is required to report on its financial statements the way it must report revenue or net income; a company that mentions it does so voluntarily, and the exact adjustments it makes to get there can vary from one company's investor presentation to the next. That variation is worth knowing before comparing two companies' self-reported EBITDA figures directly.

A real example#

In fiscal 2025, Apple reported operating income of $133.05 billion and depreciation and amortization of $11.70 billion in its own 10-K filing. Adding the two together gives an EBITDA of roughly $144.7 billion. Coca-Cola's fiscal 2025 figures, by comparison, were $13.76 billion of operating income and $1.05 billion of depreciation and amortization, for an EBITDA near $14.8 billion, a much smaller absolute number that mostly reflects the difference in company size rather than a difference in operating discipline.

Neither figure is something either company printed on the face of its income statement labeled "EBITDA." Both are computed the same way here, directly from numbers each company did file, so the two are actually comparable.

That comparability is worth pausing on, because it is not automatic. A company's own investor presentation might add back stock-based compensation, restructuring charges, or other items beyond the standard four on top of the basic formula, arriving at what it calls "adjusted EBITDA," a larger and friendlier-looking number than the plain calculation above would produce. Reading a company's own adjusted figure without checking what got added back is one of the more common ways an EBITDA comparison quietly stops being apples to apples.

Common misreadings#

EBITDA is easy to mistake for a cash-flow number, since it is often described as closer to cash than net income is. It is not the same as free cash flow: EBITDA ignores capital expenditures entirely, so a company that spends heavily on new equipment every year can show a large, healthy-looking EBITDA while still consuming cash faster than it brings it in. It also ignores changes in working capital, the cash tied up in inventory and unpaid customer invoices, which can swing a real cash position without showing up in EBITDA at all.

A second common misreading treats a higher EBITDA margin as automatically meaning a better business. Margin comparisons only mean something between companies in the same industry facing similar capital intensity; a software company and a capital-intensive manufacturer will have structurally different EBITDA margins for reasons that have little to do with which one is run better.

Related terms#

EBITDA sits between operating income, which it starts from, and free cash flow, which additionally accounts for capital spending and working capital. EV/EBITDA is a common valuation multiple that divides a company's enterprise value by this same figure. A related idea, EBITDA margin, expresses the same number as a share of revenue rather than a dollar amount.