Question EBITDA is commonly used in fundamental analysis. Provide 6 reasoning why is EBITDA a useful...

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EBITDA is commonly used in fundamental analysis. Provide 6 reasoning why is EBITDA a useful measure of financial performance?

Answer 1

Answer #1

EBITDA provides a benchmark against which the quality of a company’s reported earnings can be assessed by undertaking a reconciliation to gross operating cash flow.
EBITDA provides a measure of earnings that is not distorted by differences in accounting treatments of depreciation and amortisation, the effects of financial leverage and varying tax rates and treatments, and hence facilitates comparable company analysis on both a country specific and global basis.
EBITDA can provide a starting point in the calculation of free cash flow.
EBITDA provides an indication of the potential debt burden that a business can endure, via liquidity measures such as EBITDA/Interest and Debt/EBITDA.
EBITDA provides a key input in valuation analysis, in particular EV/EBITDA valuation and DCF valuation.

Answer 2

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