EBITDA «ee-bit-dah» is an acronym for Earnings Before Interest, Taxes, Depreciation, and Amortization. The same calculation can be arrived at from "operating income before depreciation and amortization" (OIBDA). It is one measure of 'operating cash flow'. It differs from the cash flow from operations found in the Statement of Cash Flow primarily by ignoring payments for taxes or interest. EBITDA does not add back many of the other non-cash operating expenses, like the Statement of Cash Flow does. EBITDA also differs from free cash flow because of the difference above, and also because it does not recognize the cash requirements for replacing capital assets. Although there are different points of view regarding the use of this metric by equity owners, most agree to its validity when used by debtholders, or to evaluate a business's ability to handle debt.
ebidta indicates the cash generated from the operation of the company. this is crucial indicator because if the company is not generating cash FROM ITS OPERATION than the company survival is difficult
A very crude way of looking at the two is :EBIDTA (-) Interest (-) Tax = FFO.
EBIDTA is not commonly used when evaluating publicly traded companies, at least not by the vast majority of brokers or individual investors, and accordingly, EBIDTA is not commonlky used in "stock investing." EBIDTA (earnings before interest, depreciation, income taxes, and amortization) is typcially used when evaluating the value of private companies. This approach provides a common point of reference for comparing one company's earnings to another company's, even if they have different entity structures (C Corp, S Corp, Partnership, LLC), different capitalization structures (debt vs. equity), different depreciation attributes (some companies havefinancial statements that use GAAP depreciation, while others have tax returns that use aggressive tax depreciation and equipment expensing elections, and different amortization (one company amortizing intangible acquisition costs while another has no amortizable assets). Just as the common stock of public companies trade within certain P/E multiples, depending on their industry and many other factors, so too do private companies change hands for certain EBIDTA multiples. Small companies, for example, generally sell for 3 to 5 times EBIDTA. Larger ones can change hands for as much as twice those levels. Sometimes more. If you were to go through the trouble of calculating it, a public company's EBITDA will generally be a factor of 1 or 2 lower than it's P/E. That is, a public company whose stock is trading at a multiple of 12, for example, would most likely have an EBITDA multiple between 10 and 11. The reason for this should be obvious. The earnings in the P/E ratio are the company's earnings after deducting IDTA. Accordingly, when you divide a company's market capitalization by its earnings, you get a higher number than dividing the market cap by the higher EBITDA number.
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