EBITDA stands for earnings
before interest, tax, depreciation and amortization. It is a measure of a
company's ‘pure’ operational performance. Essentially, it's a way to evaluate a
company's operational performance
without having to factor in financing decisions, accounting decisions or tax
environments.
Thus, EBITDA is a very important and useful KPI because it
allows to analyze the ‘core’ corporate performance, albeit on an accrual basis –
with all its inherent limitations. Therefore, EBITDA is a good metric to
evaluate corporate profitability, but
not cash flow generated by a business entity. Therefore, it is just one of many
financial KPI that you will need to use to analyze the financial performance of
your company.
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