Smart in 60 Seconds! Today: the EBITDA
A new episode of our series in "The Agency Blogger". Here we regularly explain the most important terms of agency controlling in a short and sweet, but practical manner. Today: the EBITDA.
The EBITDA, short for Earnings Before Interests, Taxes, Depreciation and Amortisation is an economic alternative measurement used to evaluate the profitability of a company in order to avoid distortion through depreciation, taxes, etc.
The EBITDA is calculated in order to be able to compare the efficiency of your company with others. The operating result of the company must be considered as realistically as possible here. For this reason, for example, depreciations that arise through the formation of a company or the cost-intensive acquisition of new software are subtracted from the operating result (EBIT).
The EBITDA is calculated as follows:
Annual surplus (EAT=Earnings After Taxes)
+ tax expense
- tax revenue
= result from normal business activities (EBT=Earnings Before Taxes)
+ interest expense
- interest revenue
= operating result (EBIT)
The goal is an EBITDA > 0, because it confirms a profit from operative business.
Agency software normally delivers the operating result up to the EAT, but can deliver figures up to the EBITDA with corresponding usage. The software can also be used to observe and compare the EBITDA over longer periods of time.