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What Is EBITDA?

The term EBITDA stands for "Earnings Before Interest, Taxes, Depreciation and Amortization" whereby the term "Before" is literally interpreted as "Plus", i.e. earnings PLUS interest expense, federal and state income taxes and non-cash charges.

Just as EBIT is referred to as "operating profit", EBITDA is referred to as "operating cash flow" as it is equal to EBIT plus non-cash charges.

Neither EBIT or EBITDA will be directly reported or visible on a federal income tax return for businesses as they must be independently calculated.

However, one will frequently see the term "operating income" (EBIT) on an income statement (financial statement).

Note also that the concept of "Adjusted EBITDA" is synonymous with "seller's discretionary earnings" and is equal to straight EBITDA plus owner compensation.

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