EBITDA isolates the cash‑like profits of a company’s operations by removing interest, taxes, depreciation, and amortization. This allows investors, founders, and operators to evaluate the underlying health and scalability of a business independent of capital structure, tax strategy, or accounting methods. It is derived from the Profit and Loss statement but steps back from net income to focus on operational efficiency. EBITDA is widely used for benchmarking within industries, evaluating management performance, and guiding valuation—especially in acquisitions where multiples of EBITDA estimate enterprise value. While it is a powerful lens on operational performance, EBITDA has limitations: it ignores the real costs of asset maintenance, debt risk, and may be misleading for early stage or highly capital‑intensive companies. When paired with other metrics such as cash flow and capital expenditures, EBITDA provides a clear view of a company’s core earnings potential and operational leverage.
