LovesTheTeam.com

The economic meaning of the concept of EBITDA

In what cases does EBITDA apply? Its original purpose is to analyze the attractiveness of acquisitions for borrowed funds. Today, it is used for broader purposes. Thus, EBITDA allows us to assess how profitable is the company's core business, as well as its effectiveness, regardless of the amount of credit debt and tax burden. Thanks to EBITDA, the depreciation method does not matter when determining the company's profit. The indicator is used to perform a comparative analysis with respect to competitors, to assess the value of the business before selling. Investors on the basis of it evaluate the profitability of investments. The indicator is used in analyzing the company's operating results, since it does not contain non-monetary items. It should be noted that many economic analysts criticize EBITDA. Since it does not include the company's capital expenditures (depreciation). So, the company can spend huge sums on new equipment, and EBITDA will remain unchanged. In the opinion of critics, the financial state of the company reflects the "profit" and "operational cash flow" indicators more realistically.

How to calculate EBITDA

EBITDA is calculated on the basis ofthe company's reporting in accordance with international standards of IFRS and GAAP. But EBITDA is not part of these standards, it is calculated for the indicated purposes by the following formula: (net profit + income tax expenses - refunded profit tax + interest paid - interest received) = EBIT + (depreciation - revaluation of assets) = EBITDA.On the basis of reporting under Russian Accounting Standards (RAS) accurately calculate the indicator is problematic due to lack of necessary information. An approximate calculation can be made by taking into account the following indicators EBITDA = Profit from sales (page 50, FF No. 2) + Depreciation charges (Form No. 5). This formula has some error. In addition to EBITDA, Debt / EBITDA ratio is often used to analyze the company's debt load. It reflects the balance of financial results and the company's debt load. The coefficient serves as evidence of the company's ability to fully repay the full amount of liabilities and reflects the level of its solvency. If it is high enough, it serves as a dangerous signal about problems with debt load. Often the Debt / EBITDA ratio is used by analysts to assess the companies traded on the stock exchange. Along with EBITDA, interim indicators are often used: EBIT (profit before interest on loans and taxes); EBT (pre-tax profit); OIBDA (operating profit before depreciation); NOPLAT (net operating profit minus taxes).