EBITDA is defined as earnings before interest, tax, depreciation, and amortization.

EBITDA is defined as earnings before interest, tax, depreciation, and amortization.

• A. EBITDA is calculated by subtracting interest and taxes from net income.
• B. EBITDA excludes depreciation and amortization.
• C. EBITDA is defined as earnings before interest, tax, depreciation, and amortization.
• D. EBITDA equals net income.

Answer: (C)

EBITDA focuses on operating performance by removing financing effects and non-cash charges. It starts from earnings and adds back interest and taxes to strip out financing and tax decisions, and also adds back depreciation and amortization to remove non-cash accounting charges. In other words, it represents earnings before those four items are considered. That's why the definition that EBITDA is earnings before interest, tax, depreciation, and amortization is the correct one. It precisely captures what EBITDA excludes and what it excludes it from. The other descriptions either misstate how to treat interest and taxes, omit one of the exclusions, or equate EBITDA with net income, which already includes those deductions.

EBITDA focuses on operating performance by removing financing effects and non-cash charges. It starts from earnings and adds back interest and taxes to strip out financing and tax decisions, and also adds back depreciation and amortization to remove non-cash accounting charges. In other words, it represents earnings before those four items are considered.

That's why the definition that EBITDA is earnings before interest, tax, depreciation, and amortization is the correct one. It precisely captures what EBITDA excludes and what it excludes it from. The other descriptions either misstate how to treat interest and taxes, omit one of the exclusions, or equate EBITDA with net income, which already includes those deductions.