Which statement about EBITDA is true?

Which statement about EBITDA is true?

• A. EBITDA includes depreciation and amortization
• B. EBITDA excludes depreciation and amortization
• C. EBITDA equals net income
• D. EBITDA accounts for interest expense

Answer: (B)

EBITDA is a measure of operating performance that strips out financing and non-cash charges. By definition, it equals EBIT plus depreciation and amortization, so the final figure does not reflect depreciation or amortization as a deduction. In other words, it excludes those non-cash charges from the earnings figure, focusing on core operating profitability. That’s why the statement that EBITDA excludes depreciation and amortization is the true description. It also does not include interest or taxes, and it is not the same as net income, which deducts interest and taxes and also accounts for D&A in the bottom line.

EBITDA is a measure of operating performance that strips out financing and non-cash charges. By definition, it equals EBIT plus depreciation and amortization, so the final figure does not reflect depreciation or amortization as a deduction. In other words, it excludes those non-cash charges from the earnings figure, focusing on core operating profitability. That’s why the statement that EBITDA excludes depreciation and amortization is the true description. It also does not include interest or taxes, and it is not the same as net income, which deducts interest and taxes and also accounts for D&A in the bottom line.