EBITDA is
Earnings Before
Interest,
Taxes,
Depreciation, and
Amortization.
EBITDA-positive (
abbreviated as EBITDA+) is an
important milestone in the growth of a
new company. It isn't the most important milestone -
free cash flow positive - but it demonstrates that the company has a
sustainable operating strategy.
Each of the excluded items represent costs which are not directly tied to the operations of the company. While they act as a drain on the company, tending to represent the costs of starting up a business.
- Interest
- Interest represent the cost of the money the company owes to its investors (those that didn't just get stock). While a company must pay this (and the original loan off), it doesn't actually represent a direct cost of doing business.
- Taxes
- Gotta pay the piper. However, taxes are charged (via an incredibly convoluted system) primarily on earnings - if a company is paying taxes, it should be making money.
- Depreciation
- This is a trickier one. When a company buys stuff, it becomes an asset, so it goes on the balance sheet. At some point, that stuff has no value, so it needs to come off the asset list. Rather than using a giant step function, the value is depreciated on a regular basis (usually monthly, for 3 or 4 years).
- Amortization
- Amortization is often the repayment of debt over time - it's paying the principal of the loans that are generating interest.