EBITDA is not a term I’d imagine one could easily pick up contextually. You’ll most likely hear this acronym spoken as one word (EE-BIT-DAH) vs. spelled out.

It means Earnings Before Interest Taxes Depreciation and Amortization. Simple, right?

This measurement is often used in place of Net Income or Cash Flow because it’s an easier way to compare companies in a specific industry or category. It removes factors such as how poorly a company is financed, how poor the company’s tax accountant is and expenses that don’t use cash. This is useful while conducting a comparative analysis, considering that a potential acquirer might finance the business differently, have an improved tax avoidance strategy and not care about expenses that do not expend cash.

Next up, we have the balance sheet, which shows what assets you have vs. liabilities you owe, with the difference being shareholder equity. To put it simply, all your assets must be offset by your liabilities. Evaluating company worth often begins at assessing how much equity is in the company (what the business is worth on paper if it were to be liquidated right now.)

If you hear someone referring to “P&L,” they mean the profit and loss, or income statement. This looks at an upcoming period of time—the next quarter or year—and assesses revenue streams against costs. This equals a business’ gross profit.

A cash flow statement shows if cash went up or down and why. As mentioned in a prior post, even a healthy business can suffer from poor cash flow. Cash flow can suffer from late customer payments, overspending or a variety of reasons. Having healthy cash flow gives a business, as the article says, a little “wiggle room” if things start to turn south for a company.

Read the full article at: www.business.com

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