earnings before interest, taxes, depreciation, and amortization

Earnings before interest, taxes, depreciation, and amortization (EBITDA)

A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest and income taxes. Depreciation and amortization expenses are not included in the costs.

---

earnings before interest, taxes, depreciation, and amortization (EBITDA)

One popular measure of cash generated from the operation of a company. Financial analysts frequently use EBITDA to evaluate the ability of a company to service its debt obligations. EBITDA is also used as a measure of profitability in valuing a company and in comparing a company's financial performance with other firms. Critics contend EBITDA can be a misleading financial tool, in part because companies have wide discretion in determining the dollar amount of the components used in calculating EBITDA. In addition, EBITDA does not consider the funds a company is likely to require for capital investments. See also cash flow, free cash flow.

Case Study Belgian brewer Interbrew NV announced in summer 2001 a deal to purchase Germany's fourth largest brewer, Brauerei Beck & Co. Interbrew was interested in an expanded presence in Germany and Italy, and also in the U.S. market, where Beck's was a major import brand. At the time of the announcement Interbrew's flagship brand, Stella Artois, was a minor player in the U.S. market. Some analysts criticized Interbrew for paying too high a price based on Beck's earnings before interest, taxes, depreciation, and amortization (EBITDA). The DM 3.5 billion ($1.58 billion) price represented 13 times Beck's EBITDA in the most recent fiscal year, substantially more than the 11.3 times EBITDA paid by another firm for the major French brewer Kronenbourg in an earlier deal.