Then it adds back to it the entries for taxes, interest, depreciation and amortization. One that is widely used begins with the net income, which is the item on the bottom line of the income statement. More than one formula can be used to figure EBITDA. Interest and taxes do require payment in cash, but are non-operating expenses not directly affected by the business’s primary activities. That is, they are recognized as costs on a firm’s income statement but do not require the outlay of any actual money. The expenses for depreciation and amortization are non-cash expenses. It does this by adding back to the net income figure expenses that are not directly tied to operations. In particular, it shines a light on the business’s ability to generate cash flow from its operations. What Is EBITDA?ĮBITDA, which is not required to be included in an income statement, focuses on the operating performance of a business. Any money brought in by business activities is revenue, which is generally reported quarterly and annually. It may come from sales of products, from fees charged for services, rent and commissions. Other income sources include dividends on securities owned by the company and interest on money it has loaned. It also includes all money a company is owed. Revenue, which is always reported on a business income statement, consists of all income generated by business activities – before expenses – during an accounting period.
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