Question

Q13.31 Explain why EBITDA is more difficult to manipulate than EB IT.

Answer 1

EBITDA stands for earnings before interest, taxes, depreciation and amortization.

EBIT stands for earnings before interest and taxes.

Hence, the only difference between EBITDA and EBIT is of depreciation and amortization expense.

Depreciation and Amortization is the non-cash expenditure charged against the profits of the company as the systematic allocation of the cost of fixed assets.

All expenses charged before charging depreciation and amortization are generally cash expenses and there is no much chance for manipulation. But for the purpose of calculation of depreciation and amortization charge, different methods such as SLM, WDV as well as different rates can be used to manipulate EBIT.

Hence, EBITDA is more difficult to manipulate than EBIT.