EBITDA

EBITDA is earnings before interest, taxes, depreciation, and amortization — operating profitability measured before financing costs, tax rates, and non-cash asset charges. You build it by starting from net income and adding those four items back.

The point is comparability. Two identical factories can report very different net income if one carries debt and the other does not; EBITDA strips out the capital structure so you can compare the operations. It is the standard yardstick in buyouts and credit analysis, where debt is quoted as a multiple of EBITDA (a company levered at 4x EBITDA carries debt equal to four years of it).

The famous objection, paraphrasing Charlie Munger: depreciation is a real cost. A trucking company's trucks wear out and must be replaced with actual cash, so EBITDA flatters capital-intensive businesses. Free cash flow is the honest cross-check.