Financial analysts like to use a variety of mysterious for the rest of the terms and the term EBITDA is not an exception. Strictly speaking, EBITDA is not so mysterious figure. Reduction in EBITDA (earnings before interest, taxes, depreciation and amortization) is translated into Russian as "earnings before interest, taxes, depreciation and amortization." EBITDA allows us to trace the formation of profit at all levels. In addition, with EBITDA can be compared to similar type of activity and company size. Indeed, the two absolutely identical at first glance, the company may have differed at times net profit, while the EBITDA of the first and the second company will be roughly equal. Such significant differences in profitability can be explained If we look at the generation of profits at all levels. To do this we need to measure and EBITDA. Thus, if the EBITDA of the two companies approximately equal, while the activity of companies is identical, then we can analyze how formed their profits.
The first thing we do – we subtract the depreciation of the indicators of EBITDA. Obtain a measure EBIT – earnings before interest and taxes. If companies use different methods of depreciation (for example, one of them using an accelerated method, involving a significant write-offs of fixed assets during the first years of operation, and the second – even, assuming an equal basis over the entire operation), if the company started operation of fixed assets at different times, or if one of a small amount of fixed assets (that the company prefers, for example, lease purchase the property), while the second – much more of them, then discrepancy in terms of EBIT will be significant. But do not forget, that means sinking fund is not going anywhere, they remain at the company. Moreover, they are not taxed and, therefore, companies often try to write off a significant portion of assets in the form of depreciation in the first years of use of the property. Now remove from EBIT interest paid on liabilities and obtain EBT – income before taxes. Since different companies formed sources of funding in different ways, then the debt will be different.
In addition, interest, under which companies borrow will be different and, accordingly, the size of payments will also vary. In Unlike the depreciation of the interest paid leave from the company. After taxes leaves us with net income. This profit goes to pay dividends to shareholders and the company's development. The value of the net profit is direct consequence of the methods for calculating depreciation, the value of debt and the cost of its maintenance, as well as the magnitude of taxes and duties and how to optimize them. Back: An analysis of revenue, P / S Next: Profitability