EBITDA and enterprise value (EV/EBITDA)

EBITDA is earnings before interest, taxes, depreciation and amortization. It starts from profit and adds back the cost of financing (interest), taxes, and the non-cash charges that spread the cost of past investment over time (depreciation and amortization).

Aerarium computes it as operating income plus depreciation and amortization, both taken from the company's XBRL filings. Starting from operating income keeps non-operating items such as investment gains out of the figure.

Accounting standards do not define EBITDA, so companies calculate their own versions, and "adjusted EBITDA" often removes further items such as stock-based compensation or restructuring costs. When a company presents a non-GAAP measure in an SEC filing or earnings release, it must reconcile it to the closest GAAP measure.

Two companies' reported EBITDA figures are therefore not automatically comparable. A figure computed the same way from filed operating income and D&A is more consistent, though it still inherits each company's own accounting choices.

Market capitalization prices only the equity. Enterprise value (EV) adds debt and subtracts cash — and, in fuller versions, adds preferred stock and minority interests — to estimate the value of the whole business regardless of how it is financed.

Because EBITDA is measured before interest, it belongs to all capital providers, so it pairs with enterprise value. EV/EBITDA lets a heavily indebted company be compared with a debt-free one in a way the P/E ratio, which is affected by interest costs, cannot.

Depreciation is non-cash in the year it is recorded, but the equipment it depreciates had to be bought. Capital-intensive businesses must keep spending on capex, so EBITDA can flatter them; free cash flow subtracts capex and is a useful cross-check.

EBITDA also ignores changes in working capital, stock-based compensation (a real cost paid in shares) and, by design, interest and taxes. For banks and insurers, whose interest is part of operations, EBITDA and EV/EBITDA are generally not meaningful.