Updated
EBITDA = net income + interest + income taxes + depreciation + amortization
What EBITDA means
EBITDA stands for earnings before interest, taxes, depreciation and amortization. The starting earnings figure is net income, not an undefined adjusted operating result.
Definition source
SEC — Non-GAAP Financial Measures, Question 103.01 defines EBIT and EBITDA and explains that earnings means GAAP net income. Additional exclusions should be identified as adjusted EBITDA, not plain EBITDA.
Formula
EBITDA = net income + interest expense + income tax expense + depreciation + amortization, using the same reporting period and reconciling every amount to the accounts.
What it does not show
EBITDA does not deduct capital spending, debt principal repayments or changes in working capital. It is therefore not cash flow or cash available for an owner to withdraw.
Compare like with like
Keep plain EBITDA separate from adjusted EBITDA and seller’s discretionary earnings. Explain every proposed adjustment and avoid counting the same expense twice. A multiple applied to one earnings definition cannot automatically be applied to another.
General education only.
Questions owners ask
Is EBITDA cash flow?
No. Capital spending, debt principal and working-capital changes still affect cash.
Is adjusted EBITDA the same as EBITDA?
No. Explain any additional exclusions separately and reconcile them to the accounts.
Does EBITDA add back owner pay?
Plain EBITDA does not add back owner compensation. SDE uses a different owner-operated earnings definition.