What Is EBITDA? A Simple Guide for Investors

Businesses make a lot of money.

But, businesses also have a lot of expenses that they must pay - many are unavoidable.

Things like taxes or interest on debt they’ve taken out to grow must be paid.

Profits can look a lot smaller after all of those things, and for some investors, it can cloud an earnings picture.

Because many investors just want to know one thing: Is a business making money?

Taxes are inevitable - but if a business looks good before those things, it can be valuable to the right investor.

As a result, EBITDA is a metric investors use to understand the core revenue of a business.

EBITDA is the money your business makes before you factor in things like loan interest, taxes, and accounting write-offs. 

Why does it matter? It helps investors understand if a stock is worth buying for them or not.

Let’s break down EBITDA - what it is, how to calculate it, and what a ‘good’ EBITDA is.

BTW: If you want to learn how our analysts spot market shifts and investment opportunities, watch this free podcast.

What Does EBITDA Stand For?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.

Let's break down each piece:

• Earnings - the company's profit, also called net income.
• Interest - payments the company makes on its debt.
• Taxes - what the company owes to the government.
• Depreciation - the decrease in value of physical assets like buildings and equipment over time.
• Amortization - the same concept, but applied to non-physical assets like patents or software.

When you strip all of those costs away from the bottom line, you're left with EBITDA. 

It represents the company's earnings before you look at accounting costs.

Why would you want to ignore those costs? Because accounting costs have some variables. 

Interest depends on how much debt a company carries, taxes vary by location and strategy, and depreciation is a formula, not actual cash leaving the business.

EBITDA tells you what the core business model is actually worth.

How Do You Calculate EBITDA?

To get EBITDA, you take four numbers from a company's financial statements and add them together.

EBITDA = Net Income + Interest Expense + Tax Expense + Depreciation & Amortization

You can find these numbers in a company's 10-K - the annual report that every public company files with the SEC. 

The 10-K has three key financial statements: the balance sheet, the income statement, and the cash flow statement. 

You'll pull from the income statement and the cash flow statement to calculate EBITDA.

Here's a real-world example using Nvidia:

*Note - numbers as of 2025.

You start with net income - $72.8 billion. 

Then you grab the interest expense, which was negative $247 million. 

Even though it's technically negative, you add it back as a positive value because you're looking at earnings before these costs are taken out.

Next is the tax expense from the income statement - $11.1 billion.

And finally, depreciation and amortization, which you'll find in the cash flow adjustments section - $1.86 billion for Nvidia.

Add it all together: $72.8B + $0.247B + $11.1B + $1.86B = roughly $86 billion in EBITDA.

That's the profit Nvidia's core business generated before accounting costs entered the picture.

You can find a company's 10-K for free on the SEC website or on the investor relations page of the company's website. 

Some sites will try to charge you for access, but you don't need to pay. The data is public.

What Is EV/EBITDA and Why Do Investors Use It?

EBITDA on its own tells you how much money a business is making.

But the real power comes when you use it to compare companies.

One of the most common ways to do that is with EV/EBITDA - Enterprise Value divided by EBITDA.

Enterprise Value (EV) is the market cap plus a company's total debt, minus their cash on hand. It's used to value the entire enterprise as it stands today.

Here's the formula:

EV = Market Cap + Total Debt - Cash

Using Nvidia as our example: a market cap of $4.37 trillion, plus $32.27 billion in total liabilities, minus $8.58 billion in cash, gives an enterprise value of roughly $4.39 trillion.

Now divide that by the $86 billion EBITDA and you get an EV/EBITDA of 51x. 

That means the company's enterprise is valued at 51 times its EBITDA.

So what does that 51x actually mean to you as an investor?

You have to compare it to other companies in the same industry. 

Here's how Nvidia stacks up against other semiconductor companies:

*Note EV/EBITDA numbers as of 2025.

The market is pricing in significantly higher growth expectations for Nvidia. 

Those big revenue increases showing up in the 10-K? 

Investors are willing to pay a premium for that kind of growth, and the EV/EBITDA reflects it.

What Is a Good EBITDA?

There's no single "good" EBITDA number that applies across the board.

It depends on two things: what you think is a fair price for a company's earnings, and what's considered reasonable in that specific industry.

EBITDA multiples shift depending on the economic environment. 

When interest rates are low, money flows into the economy and into investments. 

That can inflate valuations - market caps grow faster than earnings, which pushes multiples higher.

We saw this play out after the 2020 pandemic. Low interest rates meant more capital chasing investments, which drove EBITDAs - and P/E ratios - higher across the board.

You'll also see certain industries naturally carry higher multiples. 

Startup tech companies, for example, tend to trade at higher valuations because investors are pricing in future profit potential, not today's earnings.

So is 10x earnings good? 15x? 50x? It depends on the industry you're looking at. 

A stock might look overvalued relative to the general stock market but actually be undervalued compared to others in its sector.

For reference, Warren Buffett's Berkshire Hathaway generally looks for companies trading at P/E ratios of 15 or less.

The key word there is generally - He has invested in companies above a P/E of 15 and below a P/E of 15.

He’s looking for a company that makes sense - combining valuation metrics with financial and non-financial analysis.

When Should Investors Use EBITDA?

EBITDA is one of the most useful valuation tools in an investor's toolkit - but it's not the only one.

P/E ratio - price to earnings - only works for companies that actually have earnings. 

If a company isn't profitable yet, you might want to look at the P/S ratio (price to sales) instead.

P/B ratio - price to book - is best for companies that hold a lot of physical assets. 

But if a company's value is mostly intangible (think software, data, brand), EV/EBITDA is often a better fit.

The key takeaway: No single metric tells the full story. 

Smart investors look at EBITDA alongside other ratios. 

They look at revenue growth, cash flow trends, operating costs, and then compare all of these together before making a decision.

Doing the financial stock price valuation of a company is actually one of the last things you do in fundamental analysis. 

You start with the non-financial analysis - understanding the business, the leadership, the products, the competitive advantages. 

Then, you dig into the financials, and then, you start running the numbers.

EBITDA: Final Thoughts

EBITDA shows you what a company's core operations are really earning, before accounting magic comes in.

It's one of the most common metrics on Wall Street, so you’ll want to get used to seeing it a lot.

Why? When you see EBITDA, you'll know how to use it to evaluate whether a stock might be overvalued, undervalued, or fairly priced.

Our analysts use EBITDA and other valuation metrics every day to research stocks that could outpace the S&P 500 over the long term.

How do we do it? Watch this free podcast to find out.