There are many different indicators forevaluation of the financial performance of the company. Some of them are generally accepted, not only in our country, but throughout the world. To such it is possible to rank EBITDA. What is this indicator, how is it calculated and for what? In this article, we will consider in detail how the company's financial results are evaluated based on EBITDA values, and for what purposes they are used.
EBITDA: interpretation and meaning
It should immediately make a reservation that this analyticalThe indicator is not part of the accounting. And its initial purpose is to evaluate the attractiveness of a company in terms of its absorption by borrowed funds. How is the analysis done? First, EBITDA is determined, which is calculated on the basis of the company's financial statements. Then, the resulting figure is compared with industry counterparts, resulting in the effectiveness of the activities of this particular company.
Для того чтобы понять, как происходит сравнение, need to decipher the value of EBITDA. What is this indicator, and what information does it provide about the company? The term as Earnings before Interest, Taxes, Depreciation and Amortization is deciphered. If you translate literally, then this is a profit before paying interest on loans, taxes and depreciation. That is, the company's ability to earn money is assessed, regardless of whether it has debts to creditors, the state, and the depreciation method used. The profitability of the main activity is determined directly, which allows analyzing its "unbiased".
Calculation of EBITDA by international standards
Так как этот показатель используется во всем world, then the basis for its calculation should serve as reporting data in accordance with IFRS. Specifically, to determine EBITDA, the following values will be needed:
- net profit (remaining after the payment of taxes and other payments to the budget);
- income tax expense;
- reimbursed income tax;
- extraordinary income and expenses;
- interest paid and received;
- the amount of depreciation (as tangible and intangible assets);
- revaluation of assets.
The first five indicators form EBIT, oroperating profit. It is defined as the difference between gross profit and the costs of ordinary activities of the enterprise and forms the basis of the calculation of EBITDA. The formula for calculating EBIT is:
- Net profit + tax expense - reimbursed tax + ext. expenses - extra. Income +% paid -% received.
As a result, we get an intermediate indicatorbetween gross and net profit. This is the profit that a company would get if it does not use borrowed funds. It includes all revenues from sales and miscellaneous income, as well as expenses (including depreciation).
EBIT and EBITDA
EBIT should be at least positive. Knowing it, you can calculate the value of EBITDA. The calculation formula is as follows:
- EBIT + depreciation charges for MA and IA - asset revaluation.
Thus, we get the indicatorthe company's profitability before taxes,% of loans for loans and depreciation expenses in accordance with international standards. By eliminating such non-cash items of expenditure (which can be called a kind of formal accounting charges), the EBITDA value becomes closer to the operating cash flow.
EBITDA in economic history
As mentioned earlier, this indicatorwas designed to analyze the ability of the enterprise to service borrowed funds (or debts). Lenders could estimate the EBITDA values of various companies in the industry and, on their basis, determine the amount of interest payments that each of them can provide in the near future. The index was very interesting for the credit raiders who were looking for suitable companies for profit. The enterprise was considered, rather, not as a subject of the economy, but as a combination of assets that can be successfully sold off. To do this, all the articles that could potentially be sent to repay the debt, were summarized. At the same time, if all the net profit went to pay the debt, and the business as a result became unprofitable, then the tax expenses could be considered as an additional basis for settlement with debts. Naturally, for the company itself, it became an insurmountable problem - all its funds were withdrawn, and as a result, activities had to be stopped. But lenders remained in the black. This made EBITDA especially popular in the 1980s, when there was a buy-out / take-up fever for borrowed funds.
EBITDA in modern financial activities of companies
Today, this figure is the third in the seriestools to evaluate the performance of the five hundred largest corporations in America It shows the total income that the company’s activities will bring in the current reporting period. In addition, it calculates the EBITDA return on investment.
The main interest of the investor is future income.companies in which he plans to invest, which means that EBITDA is important for him. Knowing it, you can determine the rate of return on investment. The formula looks like this:
- EBITDA: sales revenue.
On the basis of the obtained values, the potential of companies with different structures but operating in the same industry is compared. For investors, this indicator is an important indicator of the return on their investment.
Benefits of the indicator
Why are many companies, especially large ones,interested in calculating exactly EBITDA? What does it give them? Explaining interest in this profitability assessment tool is very simple. Enterprises that have a fairly large amount of capital costs are able to present their business in the most favorable light, rather than on the basis of standard reporting. Investors' attention is focused on the value of EBITDA, which can significantly exceed the amount of real profit, calculated taking into account advance costs. But in some enterprises, the share of depreciation can reach 30% of the cost of production (steel production, cable TV, etc.).
Although due to the application of thisAn indicator of a business often looks stronger than its real cash flow "speaks"; many analysts today give it much more attention. This, however, is justified. After all, it is on the basis of EBITDA that one can assess the company's ability to service its obligations and reinvest funds for future business development.
EBITDA Comparison
This indicator is widely used to determine the place of an enterprise in the industry. For this, a comparative assessment is made. It includes two mandatory components:
- calculation of business value (in comparative form, for which prices are converted into multipliers of profit, sales volume and book value);
- comparison with comparable companies in the industry.
Thus, the company is evaluated onfinancial market. It is simply compared with another similar business whose shares are listed in the same industry segment. EBITDA is in demand by most public companies and is necessarily present in statements prepared for potential investors.
Conclusion
It can be concluded that we consideredThe indicator is one of the most important both for the companies themselves and for investors. We found out why all of them are interested in exactly EBITDA, what it gives to the business owners themselves and those interested in investing in it. For the former, it is an opportunity to present their company in a favorable light, for the latter, a way to estimate the potential income that can be gained from investing in its activities.
