There are many different indicators to assess the financial performance of the company.Some of them are common, not only in our country but around the world.To those can be attributed EBITDA.What is this figure, how is it calculated and why?In this article we'll look at how to evaluate the financial results based on the values of EBITDA, and for what purposes they are used.
EBITDA: deciphering and meaning
should make a reservation that the analytical component is not part of accounting.And its original purpose - assessment of the attractiveness of a company in terms of its absorption by the borrowed funds.How is the analysis?First the EBITDA, the calculation of which is based on the entity's financial statements.Then, the resulting values were compared with industry counterparts, resulting in efficiency is detected that particular company.
In order to understand how the comparison, you need to decipher the meaning of EBITDA.What is this figure, and what information he gives about the company?Stands term as Earnings before Interest, Taxes, Depreciation and Amortization.If translated literally, it is earnings before interest on loans, taxes, depreciation and amortization.That is, the ability of the company to earn regardless of her debts to creditors, the state and the depreciation method used.Profitability is directly determined by the main activity that allows you to analyze its "open mind."
EBITDA calculation according to international standards
Since this figure is used throughout the world, and the basis for its calculation must be data reporting under IFRS.Specifically, to determine the EBITDA margin will need the following values:
- net income (remaining after payment of taxes and other payments to the budget);
- expenses for income tax;
- amount of compensation for income taxes;
- extraordinary income and expenses;
- interest paid or received;
- value of depreciation (both tangible and intangible assets);
first five indicators form EBIT, or operating income.It is defined as the difference between gross profit and expenses of the ordinary activities of the enterprise and is the basis of the calculation of EBITDA.EBIT calculation formula is as follows:
- net profit + income tax - Recovery of tax + exceedingly.expenses - exceedingly.revenues paid +% -% obtained.
The result is an intermediate figure between the gross and net profit.This is the profit that the company would have received, not using borrowed funds.It includes all the income from sales and other income and expenses (including depreciation).
EBIT and EBITDA
indicator EBIT must be at least positive.Knowing it is possible to calculate the value of EBITDA.Calculation formula is as follows:
- EBIT + depreciation of AI and IA - revaluation of assets.
Thus, we get a figure the company's profitability before taxes,% -s on loans and depreciation in accordance with international standards.By eliminating the cost of non-cash items (which can be called a kind of formal accounting accruals) EBITDA was becoming more close to the operating cash flow.
EBITDA in economic history
As mentioned earlier, this figure was intended to analyze the company's ability to service debt (or debt).Lenders could estimate the EBITDA various companies in the industry and on that basis determine the amount of interest payments that each of them is able to provide in the near future.The index has been very interesting for credit Raiders, who were looking for a suitable company to benefit.The company was considered, rather than as the subject of the economy, as well as a set of assets that you can successfully sell.To this end, all items that could potentially be used to repay debt are summarized.Moreover, if all of the net profit was to pay the debt, and the business became unprofitable as a result, the costs and taxes could be regarded as an additional basis for the calculation of debt.Naturally, the company is becoming an insurmountable problem - all of its funds confiscated, and as a result had to stop work.But the creditors were in the black.This made the EBITDA is especially popular in the 80s, when there was a rush of redemption / acquisition with borrowed money.
EBITDA in today's financial performance
Today, the figure is the third in a series of tools to assess the results of the five hundred largest corporations in America and be sure to include in their annual financial reports.It shows the total revenue that the company's operations will bring in the current period.In addition, it is calculated based on the return on investment EBITDA.
The main interest of the investor - the future income of the company in which he plans to invest, and therefore it is important the size of EBITDA.Knowing him, it is possible to determine the coefficient of profitability of investments.The formula looks like this:
- value of EBITDA: revenue from sales.
On the basis of the potential values compared to companies with different structures, but working in the same industry.For investors, this figure - an important indicator of the return on their investment.
why many companies, especially large ones, are interested in calculating the indicator is EBITDA?What is it gives?To explain the interest in this instrument Profitability is very simple.Companies with a large enough volume of capital expenditures, have an opportunity to present their business in the most favorable light, rather than on the basis of standard reporting.Investors' attention is focused precisely on the value of EBITDA, which can significantly exceed the size of the real profit, calculated taking into account the upfront costs.But at some enterprises the share of depreciation can reach 30% of production costs (steel industry, cable TV, and so on.).
Despite the fact that the application of this index of business often looks stronger than "says" its real cash flow, many analysts now pay more attention to it.This, however, is justified.After all, on the basis of EBITDA is possible to estimate the company's ability to service its obligations and reinvest for the future development of the business.
comparing companies EBITDA
This indicator is widely used to determine the location of an enterprise in the industry.This is done by comparative assessment.It includes two mandatory components:
- calculation of the cost of business (in comparative form, for which prices are converted into multiples of profit, sales and book value);
- comparison with comparable companies in the sector.
thus evaluates the company in the financial market.It just is compared with other similar businesses, whose shares are traded in the same industry segment.EBITDA is demanded by the majority of public companies, and necessarily present in statements prepared for potential investors.
Conclusion We can conclude that we considered indicator is one of the most important both for companies and for investors.We found out why all of them interesting is the coefficient of EBITDA, which is itself gives business owners and interested in investing in it.For the former, it is an opportunity to present your company in a favorable light, for the second - a way to evaluate the potential income that can be obtained from investing in its operations.