Term of the Day: EBITDA

Earnings Before Interest, Taxes, Depreciation and Amortization. An
approximate measure of a company's operating cash flow based on
data from the company's income statement. Calculated by looking at
earnings before the deduction of interest expenses, taxes,
depreciation, and amortization. This earnings measure is of
particular interest in cases where companies have large amounts of
fixed assets which are subject to heavy depreciation charges (such
as manufacturing companies) or in the case where a company has a
large amount of acquired intangible assets on its books and is thus
subject to large amortization charges (such as a company that has
purchased a brand or a company that has recently made a large
acquisition). Since the distortionary accounting and financing
effects on company earnings do not factor into EBITDA, it is a
good way of comparing companies within and cross industries. This
measure is also of interest to a company's creditors, since EBITDA
is essentially the income that a company has free for interest
payments. In general, EBITDA is a useful measure only for large
companies with significant assets, and/or for companies with a
significant amount of debt financing. It is rarely a useful
measure for evaluating a small company with no significant
loans. Sometimes also called operational cash flow.