Earnings Before Interest, Taxes, Depreciation, and Amortization, calculated by taking operating income and adding back depreciation and/or amortization. Often used for corporate valuation purposes by applying a multiple derived from comparable companies that sold. EBITDA is often appropriate when depreciation or amortization of intangible assets deduced under GAAP overstates the economic decline in value of those assets.
term used to analyze REITs. Stands for earnings before interest, income taxes, depreciation accounting, amortization of deferred charges, and extraordinary items.
Example: Annie, a security analyst, was interested in learning about the earnings productivity of the real estate owned by a REIT. She wanted to focus her analysis on the real estate itself and didn't want her analysis to become muddled by how much was borrowed, the interest rate paid, or the amount of leverage. Noncash items such as depreciation accounting and amortization of leasing costs were not relevant. So, taking accounting net income as her beginning point, Annie made adjustments to derive EBITDA.
