EBITDA AS A FINANCIAL MEASURE

ФИНАНСОВЫЙ ПОКАЗАТЕЛЬ EBITDA

Грязнова Ирина Андреевна

студент 1 курса, Национальный исследовательский Московский государственный строительный университет,

РФ, Москва

Рябова Наталья Михайловна

научный руководитель, преподаватель кафедры ИЯиПК, Национальный исследовательский Московский государственный строительный университет,

РФ, Москва

ABSTRACT

analysis of financial activities of organizations is extremely important in market economy. Financial standing of the organization is of interest not only for its owners. In recent years in Russia foreign tools and methods  for analysis of financial activities have gained popularity. One of such tools – EBITDA – shows earnings before interest, taxes, depreciation and amortization are paid. It is universal in nature and enables to compare organizations of different size belonging to different spheres.

АННОТАЦИЯ

В рыночной экономике основную роль играет анализ финансовой деятельности организации. Состояние финансовой деятельности организации интересует не только её владельцев. В последние годы в России принято использовать зарубежные инструменты и методы анализа финансовой деятельности организаций. Одним из популярных инструментов анализа результатов финансовой деятельности является показатель (прибыли до уплаты процентов, налогов, износа и амортизации), который носит универсальный характер и позволяет сравнивать организации различных сфер и масштабов деятельности – EBITDA.

Ключевые слова: прибыль, валовая прибыль, амортизация, налоги, финансовый анализ.

Keywords: profit, gross profit, amortization, taxes, financial analysis.

EBITDA is one of the key financial metrics that is used to assess profitability of the company. This indicator excludes expenses dealing with interest, taxes, depreciation and amortization. Thus, EBITDA enables investors, managers and analysts compare profitability of different companies.

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. The letters DA refer to accrued depreciation and amortization allocated to the enterprise’s expenses. As everyone knows, these amounts are not transferred anywhere. Accrued depreciation amounts are funds that the enterprise can actually use. The main thing that a bank assesses is the ability of the borrower to repay the loan. From this point of view, the loan can be repaid using depreciation deductions. Let’s say you apply for a loan to buy some equipment. If the equipment had been bought using the enterprise’s own funds, accrued depreciation amounts would have compensated for incurred investment expenses. In case of funds borrowed from the bank, the borrowed funds will be repaid in the same way. That’s why the bank wants to know whether the business is able to generate cash flow that is shown by EBITDA. I.e., the financial capabilities of the business are assessed. Thus, one of the risk assessment procedures  when the bank decides whether to give you a loan involves calculating your EBITDA, comparing it with the amount of loans you already have and the amount you apply for and making a decision whether you are able to maintain the loan. EBITDA is the generated cash flow of the enterprise. It is EBITDA that enables analysts to evaluate the financial potential of the enterprise. [1]

It is rather easy to calculate this metric using the formula. EBITDA = net profit of the enterprise + tax expenses + financial expenses + depreciation and amortization.

• Net profit equals to revenue plus other income minus commercial expenses minus management expenses minus other expenses minus profit taxes.
• Tax expenses are expenses incurred by the company that deal with payment of profit taxes, property taxes, sales taxes and other taxes that can be imposed in the country or region where the company performs its business activities.
• Financial expenses are expenditures dealing with maintaining loans, financial lease and raising borrowed capital.
• Depreciation and amortization of property, tangible and intangible assets are the expenses that the company charges itself for several years due to purchase or creation of long-term assets.

It may be easier to calculate EBITDA yourself than to look for this information somewhere for several reasons: availability of information, accuracy of information, understanding of the metric.

Advantages of EBITDA calculation. The metric excludes expenses related to interest and taxes that may vary from company to company and from year to year. It enables investors to compare profitability of different companies despite differences in their debt liabilities and tax rates. It also excludes expenses dealing with depreciation and amortization of property, tangible and intangible assets. EBITDA is a simple indicator that investors and analysts can use for quick assessment of profitability of the company. Besides, this metric can be especially useful for dealing with companies with high capital expenditures that may have considerable depreciation expenses. [2]

On the whole, EBITDA is a useful financial metric for evaluation of business profitability. However, it is necessary to take into consideration its limitations and disadvantages and to use together with other financial parameters.

Exclusion of expenses dealing with depreciation and amortization of property, tangible and intangible assets can be treated as a limitation, since these expenses may constitute considerable amounts in companies with high capital expenditures. It may result in overestimating the profitability of the company. As for excluding interest on the company’s liabilities, it does not allow investors to assess the company’s ability to repay its debts. Moreover, EBITDA is not a complete metric of the company’s profitability and should not be used as the only financial metric. Analysts should also take into account other financial indicators, such as net profit, cash flow and debt ratio to obtain a complete picture of the company’s financial standing.

EBITDA metric is used in financial statements mainly by large Russian companies and holdings listed on international stock exchanges with foreign investors that own their stock (e.g., Sberbank, Gazprom, Rosneft). [3]

To conclude, EBITDA is the profit that the company would have received if it had not borrowed money, paid taxes, depreciated and amortized its assets. It enables investors and analysts to compare profitability of different companies despite differences in their debt liabilities, tax rates and structure of assets.

References:

1. Maksimova Yu.Yu., Panova A.A. Importance of EBITSA for performance assessment of the organization// Bulletin of the State University of Humanities and Social Studies. – 2023. – No. 1(49). – Pp. 39–44.
2. Afanasyev A.G., Samofalov G.S., Afanasyev G.I. Research of the nature of correlation between stock prices and EBITDA of Broadcom Inc. using correlation-regression analysis // Financial Economy. – 2024. – No. 1. – Pp. 10–16.
3. Hruboň, L. EV / EBITDA Multiple: EBTIDA Quantification / L. Hruboň // Oceňování. – 2022. – Vol. 14, No. 4. – P. 3–17. – DOI 10.18267/j.ocenovani.267. – EDN JZJCSW.