EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization

Officially, EBITDA is an earnings measure, with the letters standing for "Earnings Before Interest, Taxes, Depreciation and Amortization." Its focus is to try and divine the cash flow that a company in a theoretical financial vacuum would produce if you ignored (and yes, you can't in real life) the amount of debt it has, the cost of the factory it bought 7 years ago, its taxes, and other stuff. EBITDA is a kind of proxy for operating cash flow (and it's not a GAAP term). Unofficially, it's a way for a company to convince you it's not losing money when, in fact, often...it's losing money. Cash-money as opposed to accounting earnings.

Companies are required to report their quarterly results using certain accountings standards. These are called GAAP, or "Generally Accepted Accounting Principles." (The chance that a company is trying to get away with a little something increases substantially with each impenetrable acronym a sentence has, as in "The Q1 non-GAAP EBITDA outpaced expectations on a QoQ basis.") This GAAP accounting includes things like taxes and interest, and all the other things the EBITDA letters stand for that only a CPA and/or your grandpa understands completely.

The idea behind EBITDA (pronounced, by the way, as "ee-bit-da," or a little like how a Cajun might say "He's a big dog") is the company saying "See, if we didn't have to pay taxes, or pay the interest on the loans we took out to buy all that equipment, or if the accountants didn't make us take provisions for depreciation on that equipment or amortize anything, this is how much we would make." The goal is to show that the underlying business is sound; positive EBITDA shows that the company generates more cash on an ongoing basis than it spends on its operations.

Of course, in reality, companies do pay taxes and interest, and they need to do all the accounting stuff. It's like telling your spouse, "hey, if there hadn't been any traffic, and I didn't have to stop for gas, and I didn't catch those last three red lights, I would have been on time to dinner." That would be DTBTGRL, or "Dinner Time Before Traffic, Gas, or Red Lights." We'd pronounce that as "dit-bit-grill," but that's just a suggestion.