What Is EBITDA? And How It Differs from Net Profit

EBITDA stands for Earnings Before Interest, Tax, Depreciation, and Amortisation. It's a measure of a company's operating profitability that deliberately ignores financing and accounting decisions.

What it strips out and why

Starting from operating profit, EBITDA adds back depreciation and amortisation (non-cash accounting charges) and ignores interest (a financing choice) and tax (a jurisdiction/structure choice). The idea is to show the cash-generating power of the core business before those factors, so companies with different debt loads or asset bases can be compared more fairly.

EBITDA vs net profit

Net profit is the true bottom line — it includes interest, tax, depreciation, and one-offs. EBITDA is always higher and can flatter a company that is actually unprofitable after real costs like interest on heavy debt. Use EBITDA to compare operating performance, but never mistake it for the money that actually reaches shareholders.

The caution

Because it excludes real costs, EBITDA can overstate health for a highly leveraged or capital-heavy company. Always pair it with net profit and free cash flow. The components (operating profit, depreciation) come from the financials.