◈ GLOSSARY · BUSINESS & ENTREPRENEURSHIP
EBITDA.
A definition, in plain English — with the books that teach it.
Reviewed by ClearValue Editorial Team · Jun 27, 2026
◈ DEFINITION
What it means
Definition
EBITDA is Earnings Before Interest, Taxes, Depreciation, and Amortization. It's operating income with depreciation and amortization added back, used as a rough proxy for cash flow and to compare companies with different capital structures or tax situations. Charlie Munger called it 'bullshit earnings' for a reason — it ignores the real cost of keeping equipment and software up to date.
◈ IN PRACTICE
Example
A company has $5M operating income, $1.5M in depreciation, and $0.5M in amortization. EBITDA = $5M + $1.5M + $0.5M = $7M. A buyer might price the company at 8x EBITDA = $56M — but if the depreciated equipment actually needs replacing, the number is misleading.