What is EBT Cash for?

The EBITDA: How to calculate this metric

The EBITDA key figure can play a role both in the management of a company and in its evaluation by external organizations. It provides information about the profitability of company activities, which is why it is also used to assess the creditworthiness of companies. Some companies even use the metric to measure manager salaries. The value gives a good impression of the profitability of the company's activities and disregards those items that have nothing to do with it. These include:

  • Interest costs and income: Interest on loans and income from investments depend on a company's financial strategy and are not directly related to its activities.
  • Taxes: The taxes due depend on many different, often external factors and say nothing about the profitability of company processes.
  • Depreciation: Depreciation on property, plant and equipment and on intangible goods results from the investments that a company wants or has to undertake. Therefore they have no meaningfulness when it comes to the pure company processes.

The EBITDA is therefore an indication of the operational constitution of a business. Since depreciation is excluded, the key figure does not provide any information about the success of a company as a whole. Of course, a company's expenses also include its depreciation. On the one hand, its assets are constantly losing value and have to be replaced; on the other hand, every company must also invest in order to react to changes in its economic environment or to achieve its growth goals.