<p>EBITDA, an acronym for Earnings Before Interest, Taxes, Depreciation, and Amortization, is a measure of a company's operating performance. It excludes non-operating and non-cash expenses to provide a clear view of the company's earnings from its core business operations.</p>

<h2>How It Works</h2>
<p>EBITDA is calculated as follows:</p>
<p><strong>EBITDA = Operating Profit + Depreciation + Amortization</strong></p>
<p>Operating Profit is calculated by subtracting operating expenses from <a href="/NewSite/encyclopedia/revenue/" class="ency-link">revenue</a>. Depreciation and amortization are non-cash expenses that reduce the value of a company's assets over time. By adding these back, EBITDA provides a more accurate picture of the company's cash flow from operations.</p>

<h2>Why It Matters</h2>
<p>EBITDA is a crucial metric for investors and analysts as it helps to:</p>
<ul>
  <li>Compare the performance of companies in different industries, as it eliminates the effects of accounting methods, tax environments, and capital structures.</li>
  <li>Assess a company's ability to generate cash from its operations, as it closely aligns with the cash generated from a company's core business activities.</li>
  <li>Evaluate a company's financial health and stability, as it provides insight into the company's earnings power before considering its capital structure and tax situation.</li>
</ul>
<p>However, it's important to note that EBITDA should not be used as a standalone metric. It should be considered alongside other financial metrics, such as <a href="/NewSite/encyclopedia/net-income/" class="ency-link">net income</a> and revenue, to gain a comprehensive understanding of a company's financial health.</p>