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ebitda

Technically, it is earnings before interest, taxes, depreciation and amortization. The EBITDA measurement is intended to eliminate the impact of financing and accounting decisions. So, for example, if I’ve borrowed a lot of money, I am then paying a lot in interest to the bank. That means I’m making less profit. But in order to compare my business to another business, I would strip out the effect of my interest payments (and they would do the same), and we would compare how much we make ignoring the financing decision that I’ve made (i.e. borrowing money). It’s the same principle with depreciation and amortization, which is an accounting decision. When you hear about companies earnings being released and “earnings-per-share,” it is typically EBITDA that the term earnings is referring to.

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