EBITDA
Definition
EBITDA is earnings before interest, taxes, depreciation, and amortization — a rough proxy for pre-tax operating cash flow that ignores capital structure (interest), tax jurisdiction, and non-cash D&A. It is typically computed as EBIT plus depreciation and amortization, or as net income plus interest, taxes, and D&A.
Because it is capital-structure-neutral, EBITDA pairs with enterprise value (EV/EBITDA) and is the standard metric for comparing companies with different leverage, and for sizing debt in leveraged finance (leverage is quoted as Debt/EBITDA).
Its main criticism, famously voiced by Warren Buffett, is that it ignores capex: capital-intensive businesses must keep reinvesting, so EBITDA can dramatically overstate true cash generation. It is a non-GAAP measure, so definitions and add-backs vary by company.
Why interviewers ask
Interviewers ask you to bridge from net income or EBIT to EBITDA, and to critique it ("is EBITDA a good proxy for cash flow?" — expected answer: only partially, because it ignores capex, working capital, and taxes). A common trap is forgetting that D&A may be buried in COGS and SG&A rather than shown as a separate line.
Related terms
Interviews don't test definitions — they test recall under pressure.
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