EBITDA: a key tool for improving the financial health of companies

In the financial field, there are several metrics that help evaluate a company's performance, including EBITDA, an indicator that has become popular in the business world. In this blog, we'll explore what EBITDA is and what its importance is.

El EBITDA It is an acronym in English what does it mean Earning Before Interest, Taxes, Depreciation and Amortization (Earnings before interest, taxes, depreciation and amortization). This is a financial indicator that shows a company's ability to generate operating cash flow before considering the effects of interest, taxes, depreciation and amortization.

In other words, EBITDA is a measure of a company's imperative profitability and efficiency, excluding the way in which it is financed, tax issues and other non-cash expenses.

What is the importance of EBITDA in companies?

This metric is important because it provides a clear view of a company's ability to generate operating cash flow from its core business. By excluding non-operating costs, EBITDA allows for a more accurate comparison of profitability between companies in different sectors or different capital structures. In addition, it is useful for investors and financial analysts, as it allows them to assess the financial health of companies.

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Learn below how this metric contributes to your company in a positive way:

1. Identifying operating profitability: By calculating EBITDA, companies can evaluate their operating performance, allowing them to identify areas where improvements can be implemented. By eliminating non-operating costs, this metric provides a more accurate measure of a company's efficiency and profitability.

2. Assessment of debt repayment capacity: EBITDA is a key metric used by lenders to assess a company's ability to repay its debts. Excluding interest and taxes, EBITDA shows the amount of money available to cover interest and principal payments on the debt.

3. Comparison with competing companies: EBITDA makes it possible to compare the profitability and efficiency of a company with its direct competitors. This comparison is valuable for investors and analysts, as it provides them with information about which companies are generating better operating results.4. Strategic decision-making: this metric helps managers and decision makers evaluate the profitability of different divisions or lines of business within a company. It can help to identify areas that require greater attention or investment, as well as to determine the viability of new projects or acquisitions.

Learn here how to improve EBITDA in 10 steps.

How to measure EBITDA in my company?

Measuring this metric involves making calculations using the financial information provided in the company's financial statements, below we explain how.

(+) Revenue
(-) Costs

(=) Gross Utility

(-) Administration Expenses
(-) Sales Expenses

(=) Operational Utility

(+) Depreciations
(+) Depreciations

(=) EBITDA

Calculate EBITDA in Excel.

By using EBITDA effectively, companies can identify areas for improvement, compare themselves with competitors, evaluate their ability to repay debts, and make informed strategic decisions. Ultimately, this metric is a powerful tool that contributes to improving the financial health and long-term success of companies.