Financial analysis : Question 7
Could you give me more information on the notion of EBITDA and the advantages it presents?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortisation. It is used for measuring wealth creation before depreciation and amortisation. Profit sharing falls under EBITDA in the US since it is a part of a company’s payroll costs, but in France, it is booked after EBITDA. The same goes for some restructuring charges. Financial analysts use the EBITDA multiple for valuing companies within the same sector, in order to eliminate the differences in accounting treatment from one company to the next. You should always remember though that EBITDA does not factor in how capital intensive an activity is, unlike EBIT (Earnings Before Interest and Taxes).

For more see chapter 3 of the Vernimmen.