EBITDA is earnings before interest, taxes, depreciation, and amortization. This non-GAAP metric is often used to compare profitability among companies because it eliminates the effects of financing (affecting interest) and accounting decisions, depreciation policies, and tax rates. Also, EBITDA is often used as a measure to assess a company’s ability to service debt.

While EBITDA is a good metric to assess profitability, it is poor at evaluating cash flow. This is because EBITDA ignores cash required to fund working capital and capital expenditures.

 

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