EBITDA

EBITDA is a calculated figure, not a line in the financial statements: it does not appear in the income statement and is assembled from other lines by an analyst or by the issuer itself. The idea behind the construction is to strip out of profit everything that is determined not by how the business performs but by how it is financed, by its tax regime and by how long ago its equipment was bought.

What is stripped out of profit and why

Interest goes because it depends on the structure of the debt, not on sales. Taxes go because tax breaks, losses carried forward from earlier years and the tax shield change the bottom line at identical revenue. Depreciation and amortisation go because they are a non-cash write-off of costs already incurred at some point in the past: the money left in the year the machine was bought, while the expense drags on in the accounts for years. The metric's closest relative is EBIT, which leaves depreciation and amortisation in place and is therefore closer to the real economics of a capital-intensive business.

The formula on this page works upwards from operating profit. Hence the main technical caveat: the result depends on what the company treats as operating profit and what it classifies as one-off items. Issuers often publish an "adjusted" EBITDA, cleaning out impairments, foreign-exchange differences and management incentive costs — which is why two correctly calculated EBITDA figures for one and the same issuer may not match.

A whole family of derived metrics is built on this figure: EBITDA margin shows what share of revenue makes it down to this level, debt/EBITDA converts debt into the years needed to service it, and EV/EBITDA sets EBITDA against the value of the entire business, not just the shareholders' stake.

An example using the platform's data

For the latest reported period, EBITDA according to the platform's data is 1 049 300 000 000, on revenue of 523 100 000 000. The ratio of the first to the second is the margin: 27,85 %.

Where the metric misleads

EBITDA is meaningless where a business lives by constantly renewing its fixed assets: the depreciation that has been excluded is not an accounting convention but the coming cost of replacing what has worn out. The second common substitution is reading EBITDA as cash flow. Between the two stand working capital, interest, taxes and growth capital expenditure; how far profit turns into cash is shown by cash conversion, not by EBITDA itself. For banks and insurance companies the metric is inapplicable in principle: interest expenses are part of their core business, and there is nothing to exclude.