EBITDA = EARNING BEFORE INTEREST TAX DEPRECATION AMORTIZATION

Many investors believe
high EBITDA is indicative of a strong company.

This is true for most companies.
However, this may not always be the case.

In many cases, a company with a high EBITDA.
may have very little Net income.

EBITDA is an indicator
that calculates the profit of the company
before paying the Interest, taxes, depreciation, and amortization.

On the other hand, Net income is an indicator that calculates the total earnings of the company after paying the expenses, taxes, depreciation, and amortization.

EBITDA is used as an indicator to determine the total earning potential of a company.

On the other hand, net income is used to determine the company’s earnings per share.

EBITDA can be measured by adding depreciation and amortization to EBIT or by adding interests, taxes, depreciation, and amortization to net profit.

Net income, on the other hand, is calculated by subtracting revenue from the overall cost of doing the business.

EBITDA is used for start-up companies to see how they perform.
Net income is used pervasively in all circumstances to understand financial health.

EBITDA is used to find out the earning potential of the company. That’s why investors calculate EBITDA when they look at a new company. EBITDA is also pretty easy to use since no depreciation and amortization are involved.

Net income is used to find out the earnings per share if the company has issued any shares. By dividing the net income by the number of shares outstanding we can get the EPS.

Looking at both Net Income and EBITDA together
gives you a complete picture.

Credit : asif masani