In this article, we’re taking a deep dive into EBITA, meaning and use, calculation and comparisons.
Additionally, we’ll be answering some of the most common questions we receive about the topic of EBITA from our members.
This article is part of our free series on corporate banking solutions and features around the world, which you can access by clicking here.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
EBITA, meaning “earnings before interest, tax, and amortization”, is a calculation that measures a company’s overall profitability. Used primarily by investors, EBITA provides a clear picture of operating profitability, efficiency, and company value prior to certain financial activities.
That said, it’s important to note that two similar calculations are more commonly used than EBITA, which are EBITDA and EBIT.
EBITDA refers to “earnings before interest, tax, depreciation, and amortization” while EBIT refers to “earnings before interest and tax”. Choosing which of the three calculations you want is important because they will offer very different outcomes.
With this in mind, here are the scenarios where these three calculations might add value to the assessment of a company.
EBIT (Earnings before interest and tax):
EBIT is a calculation that is primarily used to measure a company’s operating profit. This enables investors to assess and compare a company’s operating performance against that of similar companies in the same industry.
EBITDA (Earnings before interest, tax, depreciation, and amortization):
EBITDA adds back both depreciation and amortization to the EBIT formula. This is an important consideration in industries where capital expenditure is high and financial inputs play a large role in a company’s overall profitability.
EBITA (Earnings before interest, tax, and amortization):
EBITA only adds back amortization to the EBIT formula and excludes depreciation, unlike EBITDA. EBIT is not widely used but it is commonly asked about. The use of EBITA can help with better understanding businesses where amortization plays a significant role.
Financial Metric of EBITA
EBITA is not widely used. Instead, EBIT and EBITA are the most commonly used of these three options in order to assess the profitability of companies.
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into the meaning of EBITA. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
How Is EBITA Calculated?
EBITA is calculated by taking the earnings before tax and adding back the interest expense and the amortization expense. That said, EBITA is not as commonly used as EBITDA, which also adds back the depreciation expense of a company.
Is EBITA the Same as Profit?
No, EBITA is not the same as profit. However, it does look at the profitability of a company prior to interest expenses, tax expenses, and amortization. That said, these three considerations are very important for a company and understanding their impact on a company’s overall profitability is important.
What Is a Good EBITDA Margin?
A good EBITDA margin will vary by industry, jurisdiction, competitive landscape, and various other factors. However, generally speaking, a good EBITDA margin is one that covers all financing expenses, operating costs, and investments.
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