EBITDA

EBITDA is earnings before interest, taxes, depreciation and amortization. Under SEC staff C&DI Q.103.01, earnings means GAAP net income as presented in the statement of operations. It is a total dollar figure, never a per-share amount.

What Release 47226 actually names

Exchange Act Release No. 47226, Conditions for Use of Non-GAAP Financial Measures, describes EBIT as earnings before interest and taxes and EBITDA as earnings before interest, taxes, depreciation and amortization. That is the staff’s starting definition. It is not a license to rebuild the income statement until a preferred number appears and still call the result EBITDA.

EBITDA is a non-GAAP financial measure. GAAP net income remains the bottom line on the statement of operations. Interest, tax, depreciation, and amortization are real line items. Adding them back can be a useful bridge from net income. It does not make those costs disappear, and it does not replace reading the three statements in Financial Statements for Traders.

Traders meet EBITDA in an earnings report deck, a credit slide, or a valuation multiple. The multiple still needs a price and a share count — market capitalisation and the P/E ratio live next door. None of those objects is a substitute for GAAP EPS.

Q.103.01 — the naming rule

SEC Corporation Finance Interpretations on non-GAAP financial measures, Section 103, Question 103.01 (staff C&DI; Commission page last update December 13, 2022) answers three things together.

First: “Earnings” means net income as presented in the statement of operations under GAAP. If you start from operating income, from a cash-earnings construct, or from a number that already excludes stock-based compensation, you are not starting from the earnings the release named.

Second: measures calculated differently than EBIT and EBITDA as described in Release 47226 should not be characterized as “EBIT” or “EBITDA.” Their titles should be distinguished, such as “Adjusted EBITDA.” This page will not invent an issuer’s add-back recipe. There is no universal Adjusted EBITDA. Each issuer’s list is its own non-GAAP measure and must be read as labeled in that filing.

Third: those differently calculated measures are not exempt from the prohibition in Item 10(e)(1)(ii)(A) of Regulation S-K, with the exception of the credit-covenant situation in Question 102.09. Item 10(e)(1)(ii)(A) prohibits excluding charges or liabilities that required, or will require, cash settlement from non-GAAP liquidity measures, other than EBIT and EBITDA as the release described them.

Q.103.02 — reconcile to net income, never per share

Question 103.02: if EBIT or EBITDA is presented as a performance measure, it should be reconciled to net income as presented in the statement of operations under GAAP. Operating income is not the most directly comparable GAAP financial measure, because EBIT and EBITDA make adjustments for items that are not included in operating income. In addition, these measures must not be presented on a per share basis (the C&DI points to Question 102.05).

That last clause is operational. Do not divide EXAMPLE EBITDA by diluted shares and call the result “EBITDA per share.” Do not drop an EBITDA-per-share tile next to GAAP EPS as if they were the same family. GAAP EPS has a standard. EBITDA as a total does not become a per-share earnings substitute because a spreadsheet can divide.

EXAMPLE — EBITDA as a total, never per share

EXAMPLE. Labeled instructional dollars only. Not a live issuer, not a filing extract, not a forecast, not Adjusted EBITDA. Start from GAAP net income, then add back the four named items. Compute a total.

GAAP net income $1,200,000. Interest expense $80,000. Income tax expense $320,000. Depreciation $150,000. Amortization $50,000.

EBIT = net income + interest + tax = 1,200,000 + 80,000 + 320,000 = $1,600,000. EBITDA = EBIT + depreciation + amortization = 1,600,000 + 150,000 + 50,000 = $1,800,000. One line: 1,200,000 + 80,000 + 320,000 + 150,000 + 50,000 = $1,800,000.

That total is the whole result. Do not divide $1,800,000 by a share count. If the EXAMPLE had 1,000,000 diluted shares, GAAP EPS would be $1.20; that EPS line is a GAAP per-share figure. EBITDA remains $1,800,000 as a total. Calling $1.80 “EBITDA per share” is exactly what Q.103.02 says not to present. Add-backs beyond the four named items are not EBITDA; title them as the issuer does (typically Adjusted EBITDA).

What EBITDA is not

Not cash. Depreciation and amortization are non-cash in the period, but the capex that created the asset was cash when spent, and replacements will be cash again. Interest and tax are often cash. A liquidity story belongs on the statement of cash flows.

Not a quality stamp. A growth stock with heavy reinvestment can show a large EBITDA bridge and still consume cash. Valuation work in Valuation Ratios still starts from a defined earnings or cash denominator, not from a nickname. Hub: stock courses.

FAQ

What does “earnings” mean in EBITDA?

Staff C&DI Q.103.01: earnings means net income as presented in the GAAP statement of operations. It does not mean operating income, “cash earnings,” or a number that already excludes extra items.

May a customized figure still be called EBITDA?

No. Q.103.01: measures calculated differently than Release 47226’s EBIT and EBITDA should not be characterized as EBIT or EBITDA. Distinguish the title — for example, Adjusted EBITDA. Do not invent a house recipe and borrow the unadjusted name.

Should EBITDA be presented per share?

No. Q.103.02: if presented as a performance measure, reconcile to GAAP net income, not operating income, and do not present EBIT or EBITDA on a per-share basis. Keep the EXAMPLE as a total.

How is EBIT different from EBITDA?

Release 47226: EBIT is earnings before interest and taxes. EBITDA also adds back depreciation and amortization. In the EXAMPLE, EBIT is $1,600,000 and EBITDA is $1,800,000. Both still start from GAAP net income.

Is Adjusted EBITDA exempt the way EBITDA is?

Generally no. Q.103.01: differently calculated measures are not exempt from Item 10(e)(1)(ii)(A), except the Q.102.09 credit-covenant MD&A situation. Read the issuer’s reconciliation. TODO:VERIFY any live filing’s title and reconciling items — this page does not inventory them.

Educational only. Not financial, tax, or legal advice, and not a recommendation to buy or sell any security. EXAMPLE dollars are algebra, not an issuer. Cite SEC C&DI Section 103 (Q.103.01 and Q.103.02) and Release 47226 for the naming and presentation rules.