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Earnings Before Interest Taxes and Depreciation. Sounds simple, right? Tiffs is not always the case. Lenders, investors, management and other interested parties use EBITDA as one of the key measures of financial health. But how reliable is it?
EBITDA is used as the foundation for times earnings-based business valuation methodologies, financial covenants and determining debt service capability among other things. This can motivate businesses to attempt to represent EBITDA in the most positive light. The temptation to do so is greater still when a business is in trouble. Whether used as a yardstick of profitability and ongoing business value or a basis for ...