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A company's earnings before interest, taxes, depreciation, and amortization (commonly abbreviated EBITDA, [1] pronounced / ˈ iː b ɪ t d ɑː,-b ə-, ˈ ɛ-/ [2]) is a measure of a company's profitability of the operating business only, thus before any effects of indebtedness, state-mandated payments, and costs required to maintain its asset base.
A professional investor contemplating a change to the capital structure of a firm (e.g., through a leveraged buyout) first evaluates a firm's fundamental earnings potential (reflected by earnings before interest, taxes, depreciation and amortization and EBIT), and then determines the optimal use of debt versus equity (equity value).
It may be calculated as either EBIT or EBITDA divided by the total interest expense. Times-Interest-Earned = EBIT or EBITDA / Interest Expense [1] When the interest coverage ratio is smaller than one, the company is not generating enough cash from its operations EBIT to meet its interest obligations.
To find cheap companies, the Magic Formula looks for a high earnings yield -- basically, a company's EBIT divided by its enterprise value. EBIT is earnings before interest and taxes, otherwise ...
High Return on Capital Employed (RoCE) as measured by earnings before interest and taxes (EBIT) divided by the total of net fixed assets plus working capital); and
In business, operating margin—also known as operating income margin, operating profit margin, EBIT margin and return on sales (ROS)—is the ratio of operating income ("operating profit" in the UK) to net sales, usually expressed in percent.
This can be quickly assessed using the debt-to-equity ratio, the current ratio (current assets/current liabilities) and the return on capital employed (ROCE). The ROCE is the ratio of EBIT divided by the "capital employed", i.e. all the current and non-current assets less the operating liabilities, which is the real capital of the company no ...
Enterprise value/EBITDA (more commonly referred to by the acronym EV/EBITDA) is a popular valuation multiple used to determine the fair market value of a company. By contrast to the more widely available P/E ratio (price-earnings ratio) it includes debt as part of the value of the company in the numerator and excludes costs such as the need to replace depreciating plant, interest on debt, and ...