If you've been in a business meeting in recent years, you've probably heard the word EBITDA. Someone said it with confidence. Everyone nodded. No one asked what it means. Today we explain it once and for all, without jargon.

What is EBITDA?

EBITDA stands for: Earnings Before Interest, Taxes, Depreciation and Amortization.

In simple terms: it’s what your business generates from its pure operation, before financial structure (debt), taxes and non-cash accounting effects (depreciation and amortization) come into play.

Think of it like this: if your company were a machine, EBITDA tells you how well that machine works, regardless of how you financed it or how much tax you pay.

A real example

Laura has a distribution company. Her income statement shows:

  • Revenue: $1,000M
  • Operating costs and expenses: $700M
  • Vehicle depreciation: $50M
  • Credit interest: $30M
  • Taxes: $40M
  • Net income: $180M

Her EBITDA would be: $180M + $40M + $30M + $50M = $300M

Why does that separate number matter? Because it tells Laura (and any investor or bank) how much her operation generates before financial and accounting decisions. It’s the cleanest measure of operating efficiency.

What is EBITDA used for?

  • Comparing companies: Two companies in the same sector with different debt levels or depreciation policies are better compared by EBITDA than by net income.
  • Valuations: The most-used valuation multiples (EV/EBITDA) start from this number.
  • Debt negotiation: Banks frequently measure your repayment capacity as a multiple of EBITDA.
  • Efficiency: EBITDA margin (EBITDA / Revenue) tells you what percentage of your sales becomes operating cash generation.

What’s a good EBITDA?

It completely depends on the industry. A 10% EBITDA margin can be excellent in distribution and mediocre in software. That’s why you always have to compare it against the sector.

What you should know

EBITDA is a powerful tool, but it’s not perfect. It doesn’t include capex (asset investment), it doesn’t reflect changes in working capital, and it can be manipulated through accounting if not properly analyzed.

At MOVA we calculate, interpret and monitor your company’s EBITDA as part of our executive reports, so you always have the real pulse of your operation.