EBITDA: a simple way to calculate earnings before interest, taxes, depreciation, and amortization. | Brian Feroldi posted on the topic | LinkedIn (2024)

Brian Feroldi

I demystify the stock market | Author, Speaker, Creator | 100,000+ investors read my free newsletter (see link)

1mo

I prefer EBIT & EBT over EBITDA. Here's how to calculate those (and a few other important metrics).

Saurav Sen, CFA

Research Analyst | Investor | Founder

1mo

I find EBITDA minus Maintenance Capex more useful. Some companies explicitly quantify Maintenance Capex, most don't. In that case, I compare Depreciation to Capex (both on the cash flow statement) and if Dep < Capex, I assume Dep. is a reasonable estimate of Maintenance Capex. Otherwise I use the whole Capex number, which could overestimate Dep. but probably apt for firms that book their R&D as an expense item in the income statement before the EBITDA line). Hope this helps anyone who's nerding out on this on Saturday! 😀

John Cheek

Vice President, Intellectual Property & Legal Operations at Tenneco

1mo

This is a helpful reference for newbies, but I worry that the red shorthand yes is misleading. Direct labor is in COGS and general expenses are more - often much more - than costs paid to employees (some of which are in COGS). Hopefully anyone really looking to understand EBITDA will look closer at the underlying expense categories.

John Stuller, CPA, MAcc

1mo

EBITDA is not recognized as a Generally Accepted Accounting Principle by the FASB/SEC. It was originally created by an executive in the late 70s to argue for a higher bonus.

Stephen Boras

Executive Vice President, Head of Model Risk Management & Validation

1mo

It is vital for “quants” to have a basic understanding of what they’re modeling. Thus, all “data scientists” claiming to build AI corporate finance or credit risk models, MUST know if depreciation is a source or use of cash (that’s sort of a trick question), and the difference between operating cash flow and EBITDA.

Gaurav Jain, MBA 🚀

Transforming Global Pharmaceutical Projects Via Strategic Alliance Management | Ensuring Sustainable & Scalable Business Outcomes | International MBA | Ex-Pfizer | Ex-Abbott | CDMO | CRO | 🇮🇳 ️🇫🇷 🇫🇮 🇨🇭

1mo

While EBITDA offers a glimpse into a company's operating health, it's crucial to recognize its limitations. It can paint an unrealistic picture by overlooking cash flow, capital needs, and debt burdens. Additionally, varying calculation methods make comparisons tricky. Overemphasizing EBITDA can distract from essential metrics and underlying issues. Therefore, use it cautiously, alongside other financial indicators, and avoid basing decisions solely on this single measure.

Sumit Chanda

CEO & Founder at JARVIS INVEST

1mo

Brian Feroldi One major concern of EBITDA is that it excludes important elements such as interest, taxes, and capital expenditures, which can provide a skewed picture of a company's overall financial health. Additionally, EBITDA doesn't account for changes in working capital, and its reliance on depreciation and amortization can mask the need for ongoing capital investments. Therefore, using EBITDA alone may overlook crucial aspects of a company's financial situation and should be complemented with a comprehensive analysis.

Josh Aharonoff, CPA

Fractional CFO | 300k+ Finance & Accounting Audience | Founder & CEO of Mighty Digits

1mo

The most misunderstood metric…explained simply. Nicely done!

Fernando Blanco

JHSF Capital | CRO | COO | Conselheiro | Mentor | Palestrante | Autor | Professor de MBA | Diretor de Crédito | Gestão de Riscos | Mercado Financeiro | International Banking

1mo

I am a member of The EBIDTA Despise Club", but I disagree with Munger (RIP, great man).Here in Brazil, one cannot oversee the working capital needs and loans' principal payments.That's why I'm the founder of The Cash Flow Statement Lovers Society.