EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is an indicator of a company's financial performance. It measures a company’s financial performance by computing earnings from core business operations, without including the effects of capital structure, tax rates and depreciation policies. EBITDA is a rough approximation for cash flow; it ignores many factors that impact on true cash flow, such as debt payments. Even so, it may be useful for evaluating firms in the same industry with widely different capital structures, tax rates, and depreciation policies.
EBITDA is a "calculated" indicator which is not defined under GAAP. EBITDA is often used in various evaluating ratios, such as EV/EBITDA and EBITDA margins. EBITDA demonstrates to investors the ability to have a return on their investments.
EBITDA = Revenue – Expenses (excluding tax, interest, depreciation, amortization)