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EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a financial metric used to measure a company's profitability by calculating its earnings before accounting for certain expenses, such as interest payments on debt, other operating expenses, taxes, depreciation, and amortization.


Let's say we are evaluating the financial performance of a company and you have the following information:

  • Revenue: $500,000
  • Cost of goods sold: $300,000
  • Operating expenses: $100,000
  • Depreciation expense: $20,000
  • Amortization expense: $5,000

To calculate EBITDA for this company, we would use the following formula:

EBITDA = Operating income + Depreciation expense + Amortization expense

First, we need to calculate the company's operating income:

Operating income = Revenue - Cost of goods sold - Operating expenses 

Operating income = $500,000 - $300,000 - $100,000 

Operating income = $100,000

Next, you need to add back the depreciation and amortization expenses:

EBITDA = Operating income + Depreciation expense + Amortization expense 

EBITDA = $100,000 + $20,000 + $5,000 EBITDA = $125,000

Therefore, the EBITDA for this company is $125,000. This means that the company generated $125,000 in earnings before accounting for interest, taxes, depreciation, and amortization expenses.

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