What is EBITDA?
Think of it as one way to measure how much money a business makes just from doing its main job, before the accounting fine print clouds things up. Grab your popcorn. We'll walk through it using a movie-theater chain like AMC.
E
Earnings
B
Before
I
Interest
T
Taxes
D
Depreciation
A
Amortization
Start at the top & subtract
Revenue
Everything AMC rings up: tickets, popcorn, soda, and candy
$100
−
Cost of concessions & film rental
The popcorn kernels, cups, and the cut studios take from ticket sales
$45
−
Theater rent & utilities
Keeping the lights, projectors, and AC running
$20
−
Staff wages
The folks tearing tickets and buttering popcorn
$15
↓
EBITDA
What the theaters actually earn, before I, T, D, and A
$20
Why “before” those four?
EBITDA sets aside interest on debt, taxes, and depreciation and amortization (which spread the cost of things like projectors and buildings out over time). Those numbers say more about how a company is financed and does its books than how well the theaters actually run. Leave them out, and you can line up two businesses and compare the core of what they do.
Sample numbers scaled to $100 of revenue to show the idea, not AMC's actual figures.