EBITDA and EBITA can be confusing. Â EBITDA stands for “Earnings before Interest, Taxes, Depreciation, and Amortization”.Â It is a variable that is used to determine the profitability of the business before the skills of the accounts coming into play.Â Certain industries, like Real Estate, have larger tax benefits and service more debt than typically others. This calculation reduces that complicated mess and makes it very comparable to other businesses.
Another metric that is used that some argue is better, is EBITA (Earnings before Interest, Taxes, and Amortization).Â The reason why depreciation is accounted for in this metric is to account for the wear and tear on the assets.
You might come across EBITDA and EBITA around your work place when people are talking about quarterly numbers. Â You might also see them in financial reports and summaries of the stocks you are researching.