By May 27, 2019September 21st, 20213 Comments

What is EBITDA?

EBITDA is a non-GAAP metric that measures the cash profit generated by the business operations. It stands for Earnings Before Interest, Taxes, Depreciation and Amortization. It’s calculated as EBIT plus Depreciation and Amortization (D&A).

  • George Sand 5 years ago

    What if this is because Company B has just delayed its capex program, will the conclusion still hold?

    • Lumovest 5 years ago

      That depends.

      If it’s a scenario where Company A has to invest in CapEx before earning profits while Company B can earn profits first and get the validation before investing the CapEx, then Company B is a far superior business because of the visibility.

      If it’s a scenario where Company A and Company B both have to spend CapEx to run their business and Company A is just spending it 1 year earlier while Company B will spend the same amount of cash the next year, it matters a lot less. However, in practice, this is rarely the case because D&A is usually the result of years of cumulative spending where a single year’s delay wouldn’t move the needle much.

      • Lumovest 5 years ago

        Btw, to gauge how much CapEx the business really needs to spend to run the business, the private equity & hedge fund investors have to diligence the business (i.e. visiting the factories / buildings / stores, evaluating the machinery, etc).

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