When it comes to understanding a business’s profitability, EBITDA is a key metric. Short for Earnings Before Interest, Taxes, Depreciation, and Amortization, EBITDA shows how much a business earns from its core operations.
For business owners, understanding EBITDA offers a clear snapshot of operating success, making it easier to make strategic decisions and showcase business health to lenders or investors.
In this guide, we’ll break down what EBITDA is, how to calculate it, and how Boundless can support your journey.
EBITDA gives a clear view of income from regular business activities by excluding expenses like interest and taxes. Business News Daily explains that this metric removes non-operational expenses, focusing solely on earnings from core activities, which provides a valuable and consistent way to measure profitability across businesses. It’s also a widely accepted financial standard, as highlighted by Investopedia, making it especially useful for comparisons within the same industry.
Many find EBITDA valuable as it helps standardize earnings across businesses, which is particularly useful for attracting potential investors or lenders.
Want to better understand your business metrics? Let’s chat to see how Boundless can help your business thrive.
For business owners, EBITDA offers a simple view of core profitability, highlighting operational strengths and growth areas. By focusing only on earnings from main business activities and excluding one-time or financing costs, EBITDA shows how well your business generates revenue on its own. The Corporate Finance Institute notes that EBITDA helps SMBs track growth and profitability more clearly by focusing on operational results
The formula for calculating EBITDA:
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
Imagine you run a pet e-commerce store that generates:
Using the formula:
EBITDA = $80,000 + $5,000 + $3,000 + $7,000 + $10,000 = $105,000
This calculation shows that the store earns $105,000 from its core operations. For a business like yours, this metric can help track growth over time, compare with other e-commerce companies in the same industry, and highlight the performance of day-to-day operations without the impact of taxes or financing costs.
Would you like to learn more? The team at Boundless can show you how to leverage insights like EBITDA to secure funding and manage growth effectively.
With EBITDA, you can:
For SMBs, understanding EBITDA can help when seeking funding or showcasing growth potential to partners.
A negative EBITDA generally means the core business isn’t generating enough revenue to cover operational expenses, which could indicate underlying financial challenges.
No, EBITDA is not cash flow. While both measure aspects of a business’s financial health, EBITDA only accounts for earnings before non-operational expenses, whereas cash flow includes all cash moving in and out of the business.
Net profit accounts for all expenses, including taxes and interest, while EBITDA removes these non-operational factors to focus solely on core earnings.
While not essential for every SMB, EBITDA is especially useful for those seeking to grow or attract investors, as it provides a clear view of operational profitability.
Absolutely! Boundless provides insights to help SMBs analyze key financial metrics like EBITDA, making financial planning and funding decisions easier. Schedule a call with the Boundless team today.
EBITDA provides a simplified view of earnings from your main business activities, helping you assess profitability and communicate effectively with investors or lenders. With Boundless, you gain access to insights that make it easier to leverage metrics like EBITDA for your business’s success.
Visit Boundless to learn more about how we support SMBs in reaching their growth goals.
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