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Finance GlossaryEBITDA
EBITDA
Definition of EBITDA
EBITDA is short for Earnings Before Interest, Taxes, Depreciation, and Amortization. EBITDA allows investors to understand cash flow from all operations while excluding certain non-cash expenses related to interest, depreciation, amortization, and taxes.
That’s why investors use EBITDA as a valuation technique to determine the profitability of a company. Interestingly, EBITDA is a variation of operating income which is known as EBIT.
While there are many ways to calculate EBITDA, the most common methods include:
1) EBITDA = Net Income + Taxes + Interest + Depreciation + Amortization 2) EBITDA = Operating Income + Depreciation & Amortization
That’s why investors use EBITDA as a valuation technique to determine the profitability of a company. Interestingly, EBITDA is a variation of operating income which is known as EBIT.
While there are many ways to calculate EBITDA, the most common methods include:
1) EBITDA = Net Income + Taxes + Interest + Depreciation + Amortization 2) EBITDA = Operating Income + Depreciation & Amortization
Related Terms
Irredeemable Debentures
Irredeemable debentures are debt instruments that can not be sold unless the company is sold or shuts up shop. Those who hold irredeemable debentures will be paid an interest as long as the company operates its business.
Bond Market
A bond market is a place where bonds are issued, bought, and sold. Bonds are issued in exchange for a loan generally by governments and corporations.
Payback Period
The Payback Period is a capital budgeting metric that calculates the amount of time it takes for a project or investment to pay back its initial cost. It is one of the simplest methods for evaluating potential investments. The formula is: Payback Period = Initial Investment/Annual Cash Flow. A shorter payback period is usually preferred as it means a faster return of capital and less risk. However, it is a limited metric, as it does not take into account the time value of money and the cash flows generated after the initial investment is recovered.
Penny Stocks
Penny Stocks are those shares of small companies trading at low prices, often below the price of a Rs. 10 or Rs. 20 share in the Indian stock market, and have low market capitalisation. These stocks are characterised by high volatility, low liquidity, and a high degree of speculation, which makes investments in these stocks extremely risky. While they have the potential to provide attractive returns, they are also subject to manipulation and can lead to the total loss of capital.
Average Daily Trading Volume
The Average Daily Trading Volume (ADTV) is a technical indicator that indicates the number of shares that were bought and sold on average across one or more trading days.
A high ADTV means that more investors are interested in a stock while a low ADTV implies that a stock isn’t on the radar of many investors. The formula for Average Daily Trading Volume (ADTV) is:
ADTV x days = Total trading volume of stock across x days / x days
A high ADTV means that more investors are interested in a stock while a low ADTV implies that a stock isn’t on the radar of many investors. The formula for Average Daily Trading Volume (ADTV) is:
ADTV x days = Total trading volume of stock across x days / x days
Long-Term Capital Gain Tax
Long-term capital gain tax is the tax imposed on profits from selling shares or financial securities held for a period of at least three years. The tax rate applied is typically lower than the short-term capital gains tax, which are profits from the sale of shares held for a shorter duration.
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