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EBITDA kya hota hai? Meaning in simple words

The Plainomics desk1 source

EBITDA: what a business earns from its everyday work before paying interest and tax, and before counting the wear and tear on its equipment.

Sameer drops a sheet on Riya's desk; she smiles and gestures with her phone in hand.

The story

two people, one chai stall

Riya's first week in finance. Sameer drops a sheet on her desk.

Sameer

Investors keep asking for our EBITDA. What do I tell them?

Riya

We sold ₹120 crore of chai this year. Milk, tea, cups, staff and rent cost ₹102 crore. That leaves ₹18 crore. That's the EBITDA.

Sameer

But we only kept ₹9 crore.

Riya

Right. Take off ₹4 crore for the kettles and kiosks wearing out, ₹2 crore of interest and ₹3 crore of tax. EBITDA just stops earlier.

Sameer

So why would anyone want the earlier number?

Riya

Because it shows how good the chai business itself is. You can compare us with a chain that borrowed more or owns fewer kiosks.

The grown-up version

same idea, exact words

EBITDA is earnings before interest, tax, depreciation and amortisation. It is not defined by Ind AS, so companies choose how to calculate it and should explain their method.

Formula

EBITDA = Profit before tax + Finance costs + Depreciation and amortisation − Other income (if the company excludes it)

Which rule asks for itNot defined in Ind AS or Schedule III. The ICAI Guidance Note on Division II of Schedule III (para 6.13 of the January 2022 edition) lets a company show EBITDA as an extra line on the face of the profit and loss statement, if it applies the method consistently and discloses how it measures it.

Spot it in the wild

a real annual report, a real page

Tata Consumer Products standalone performance table from the management discussion, with EBITDA and EBITDA margin circled
Found it: p.224Tata Consumer Products Ltd · Integrated Annual Report 2025-26
  1. EBITDA, in the management discussion: ₹1,834 crore, up 29%.
  2. EBITDA margin: 12.5 paise of EBITDA for every rupee of sales.

Don't mix it up

the usual confusions

  • EBITDA ≠ operating profit

    Operating profit (EBIT) comes after depreciation and amortisation. EBITDA comes before them, so it is always the bigger number for a company that owns equipment.

  • EBITDA ≠ net profit

    Net profit is what is left after everything, including interest and tax. EBITDA stops much earlier.

Three quick sips

no sign-up, nothing saved

1/3 Sameer's stall sells ₹120 crore of chai and spends ₹102 crore running it. What is the EBITDA?

Hindi mein

EBITDA (ईबिटडा)

EBITDA यानी ब्याज, टैक्स, डेप्रिसिएशन और अमॉर्टाइज़ेशन से पहले की कमाई: कंपनी अपने रोज़ के काम से कितना कमाती है।

Sources

  1. Guidance Note on Division II, Ind AS Schedule III to the Companies Act, 2013 (Revised January 2022), para 6.13, ICAI