EBITDA

 EBITDA This, or EBITA that, we all have been hearing about the EBITA for about 2 or 3 years(for the context of the people who are not very familiar with the stock market world) or more so, but do not worry after reading the whole blog you will be able to understand the entire concept of the EBITA and will be able to understand how to see it, how to look at the EBITA of the company, what are the limitation of the EBITA to use it as the major tool to analysis the company fundamentals. Here we began.

So, Earnings before interest, taxes, and amortization (EBITA) is the measure of company profitability used by investors, I know what your reaction is, you perhaps be like Bro you just spoke Greek to me, how do I even understand the EBITDA. So it is just a way to find the profitability of the money, if the company is making a loss, profit, so just barely surviving. Hear me out on a very layman's terms, it is the money a company has after deducting the cost of goods sold, and paying for the people who work for them before paying the interest, taxes and amortization. This is the basic idea for the EBITDA.

It helps to understand if the company will sustain itself in the future or be able to take a big loan in case the company has to take the money from shareholders to expand like buying machinery opening a new branch or pursuing a new business opportunity or it can take the loan to expand the business.

Now you will say, something like, “ok, it is something by which we can find the company is in profit, but how do I find if it is in profit or not”, and I will tell you “Google it”, just joking.

Imagine, your friend Ryan opened the business of selling the juice, and has one staff member to chore, and sell the juice to the customer.

So after you record the data and calculate at the end of March. You can see you received the money of 1000K INR(Indian currency) from the customer called revenue, and you deduct the cost of an orange is 100K which is the cost of goods sold, and paying for the staff 200K which is called Selling, General, and Administrative Expenses, rest is 700K INR which is your EBITDA, best way to see it is as the margin which 70% EBITA, after paying for the interest, you save the money for buying for the new machine or big fix mandatory purchase which are counted as depreciation or amortisation, and then GOVT steal your money jk, they take the tax.

Now imagine if the company is earning 70% EBITDA, can they take a loan from outside which 15% it is easy to say yes, "no brainer", yes they can take the loan and will be able to repay the loan, but if I say company is earning 20% EBITDA will they able to take the loan of 20% interest or they should sell their percentage of company to someone, you might be confuse, but it is reckon to say it is high risk to take such big loan so selling the small company percentage or not taking money is a more wise decision.

Beware, people can actually manipulate the EBITA since it is something companies are not liable to show as per law, they are showing because most of the investors are just totally dependent upon the EBITA numbers.

It is also called cash operating profit, you can also find the EBITDA of the company by searching of “cash operating of the profit”, and you can also download the annual report of the company where many companies mention the “EBITDA” in the “Financial Statements”