What is adjusted EBITDA?

Adjusted EBITDA is used to assess and compare related companies for valuation analysis and for other purposes. Adjusted EBITDA differs from the standard EBITDA measure in that a company's adjusted EBITDA is used to normalize its income and expenses since different companies may have several types of expense items that are unique to them.

How is EBITDA calculated?

The calculation of EBITDA involves starting with a company’s net income and adding back interest, taxes, depreciation, and amortization. This straightforward formula provides a quick assessment of a company’s operational profitability, serving as a fundamental measure for financial analysis and comparison.

How much is interest expense compared to EBITDA?

Interest expense is $5 million, leaving earnings before taxes of $25 million. With a 20% tax rate, net income equals $20 million after $5 million in taxes is subtracted from pretax income. If depreciation, amortization, interest, and taxes are added back to net income, EBITDA equals $40 million.