As an investor, it’s important to get a clear picture of a company’s financial health 🥳
So, how do you determine a company’s profit, before things like taxes and interest rates? 🤔
Say hi to EBITDA! 👋
💡 EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization.
Overall, EBITDA is a company’s true revenue! 🥳
But, what do all of those terms mean?
💸 Earnings = Net income, so revenue - expenses
💹 Interest = cost of borrowing money due to the interest rate or fee on a loan!
💰Taxes = money paid to the government including sales tax & any other corporate tax!
📉 Depreciation = decreased value of assets over time.
For example, a car company’s cars lose value every year 🚗
🤑 Amortization = cost of intangible assets, spread out over time.
Let’s say Apple secured the rights to its logo, so no one else can use it! 🍎But, maybe it cost $100k. 😬
Instead of paying $100k up front, Apple might pay $10k every year for 10 years. 💸
If Apple's EBITDA is $50 billion, the company has made $50 billion before subtracting interest payments, taxes, depreciation, and amortization. 🍎
EBITDA is a useful tool for investors, but it's important to remember that it doesn't tell the full story about a company's financial health. 🤓
So, make sure to use EBITDA with your other investment tools 🥳
