What is EBITDA?

 

The CFO’s shortcut to understanding EBITDA

A finance manager I coached last week was drowning in metrics during a board preparation

But one number kept coming back on every slide: EBITDA
and nobody agreed on what it really meant.

Here’s the moment he realized:

He wasn’t dealing with a profit metric

He was dealing with a signal of operational performance

If you’ve ever been in that position, this is for you.

Here’s what’s inside:

1. What EBITDA actually is
Earnings before interest, taxes, depreciation, and amortization - a clean view of core operations

2. Why CFOs rely on it
Strips out financing noise so you can compare companies without capital structure distortions

3. How to calculate it
Start with Net Income → add back interest, taxes, depreciation, and amortization

4. EBITDA vs. Net Income
One shows operational performance; the other shows the final profit after everything

5. Its biggest limitations
Doesn’t include CapEx, hides debt burden, and can overstate cash flow

6. When to use EBITDA
Useful for comparing companies in the same industry or valuing with multiples

7. When NOT to use it
Not great for cash flow analysis, cross-industry benchmarking, or assessing true profitability

8. Your mental model
EBITDA = performance of the engine
Net Income = performance of the whole car

EBITDA is a powerful metric, but only when you know precisely what it signals and what it hides

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