EBITDA
What EBITDA means, how it is calculated, how Malaysian investors use it, and a worked Company A example in RM. Education only, not investment advice.
What is EBITDA?
EBITDA stands for earnings before interest, tax, depreciation and amortisation. It equals operating profit (EBIT) plus depreciation and amortisation, so it shows earnings before financing, tax and non-cash accounting charges. It is a useful comparison measure, but it is not cash flow.
How it is calculated
Take operating profit, also called EBIT, and add back depreciation and amortisation. Starting from net profit, you can instead add back interest, tax, depreciation and amortisation.
Formula: EBITDA = operating profit (EBIT) + depreciation + amortisation
How Malaysian investors use it
EBITDA helps compare companies with different debt levels or tax positions. It is common in capital-heavy industries, where depreciation is large. Bursa Malaysia income statements do not always show EBITDA directly, so many investors calculate it from operating profit and the depreciation figures in the annual report.
Worked example: Company A
Company A is hypothetical. Its operating profit (EBIT) is RM60 million, depreciation is RM15 million and amortisation is RM5 million.
Cross-check: net profit RM40 million + tax RM14 million + interest RM6 million + depreciation and amortisation RM20 million also equals RM80 million.
Common mistakes
- Treating EBITDA as cash. Capital spending and working capital changes are left out.
- Ignoring heavy capital spending that a high EBITDA can hide.
- Adding back one-off items in one year but not in others.
- Comparing companies with different accounting policies without adjusting.
Related terms
- Income statement – where operating profit and tax are reported.
- Free cash flow – a cash-based view that EBITDA does not show.
- Net margin – profit as a share of revenue, after all costs.
Where Finworld shows it
Finworld Software’s financial statements include the income statement in annual, quarterly and trailing-12-month views, with comparison against the sector. Use the operating profit and other income-statement lines there, then add depreciation and amortisation from the company’s report.
Frequently asked questions
Is EBITDA the same as profit?
No. EBITDA is measured before interest, tax and non-cash charges, so it is usually higher than net profit.
Does EBITDA show how much cash a company generated?
Not directly. It ignores capital spending and changes in working capital, so pair it with the cash-flow statement.
Why do analysts use EBITDA?
It allows comparison across companies with different financing and tax structures. Its limits should be kept in mind when reading it.
See how this fits into Finworld Software, or book a demo.
Finworld provides market education and research tools only. This is not investment advice. Market data is end-of-day.
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