What is EBITDA? Explained Simply With Examples

In this video, I break down EBITDA — earnings before interest, taxes, depreciation, and amortization — one of the most widely used and most frequently misunderstood numbers in all of finance. You’ll learn exactly what EBITDA means, how it differs from the bottom-line net income at the foot of an income statement, and why it aims to capture the profit a business generates from its core operations before financing and accounting choices come into play. I walk through the full calculation with real numbers — starting at one billion dollars in revenue and working down a simplified income statement to a four hundred million dollar EBITDA — then show the add-back method analysts use to reach the same figure from net income or EBIT. I also cover why EBITDA deliberately stops before interest, taxes, depreciation, and amortization — how debt loads and tax rates can make two otherwise identical businesses look very different, why depreciation and amortization are non-cash charges that get added back, and why investors reach for EBITDA to compare companies that are financed, taxed, and equipped differently. Then I get into where EBITDA is genuinely useful — capital-intensive industries like telecom, manufacturing, and energy, and companies being evaluated for acquisition — along with its real blind spots, including the cash it still takes to replace equipment, the working capital and interest it ignores, how “adjusted EBITDA” can be stretched, why it breaks down for banks, and why it should never be mistaken for cash flow. Whether you’re analyzing a company, comparing two businesses side by side, or preparing for a finance interview, this video gives you everything you need to understand how EBITDA really works — and where it can mislead you.

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Chapters
0:00 – Introduction
0:26 – What is EBITDA?
0:47 – From Revenue to Net Income
1:42 – The Add-Back Method
2:14 – Why EBITDA Strips Out Financing, Taxes & D&A
3:18 – Why Investors Use EBITDA
3:33 – Blind Spots & Where EBITDA Fits

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*Disclosure: This is not financial advice and should not be taken as such. The information contained in this video is an opinion. Some of the information could be wrong. This channel is owned and operated by Portfolio Constructs LLC. Some of the links above are affiliate links, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase.