EBITDA, Decomposed
Abir Haddoud · 2026
"EBITDA strips out financing structure, tax jurisdiction, and accounting depreciation choices to expose a company's core operating performance — which makes it useful for comparing companies fairly, but only if you separately track the real cash flow and capital expense risks it deliberately ignores."
Two companies with identical operations can report wildly different net income just because one carries more debt or depreciates its equipment differently. EBITDA is the attempt to see past that noise.
Built as Net Income + Interest + Taxes + Depreciation + Amortization (or equivalently, Revenue minus operating expenses excluding D&A), EBITDA compares companies fairly across different capital structures, removes financing and tax-jurisdiction differences, and simplifies performance tracking over time. But it also has real blind spots: it isn't actual cash flow, it ignores working capital changes, it excludes capital expenditures entirely, and it can flatter companies with heavy ongoing capex needs (industries differ sharply — software runs 20-30% EBITDA margins, manufacturing runs 10-15%) by making them look more efficient than their true cash generation supports.
What is the primary blind spot of EBITDA as a performance metric?
Read more about the topic
The explanation above is written with AI assistance. These are the originals — go to them to check it.
- EBITDA ExplainedX (Twitter) infographic
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