EBITDA

Earnings before interest, taxes, depreciation and amortization. It is calculated by adding depreciation and amortization back to EBIT (operating income), producing a proxy for a company's core operating cash-generating ability that strips out financing structure, tax jurisdiction and non-cash charges.

Practice questions using EBITDA

Original questions written against the published FINRA and NASAA exam content outlines — not actual exam questions. Every choice is explained.

Fictional issuer Carrow Logistics reports EBIT of $30 million and depreciation and amortization (D&A) of $12 million for the year. What is EBITDA?

A.$18 millionWrong. This subtracts D&A from EBIT instead of adding it back.
B.$360 millionWrong. This multiplies the two figures instead of adding them.
C.$30 millionWrong. This just restates EBIT without adding back D&A.
D.$42 millionCorrect. $30M + $12M = $42 million.

Why: EBITDA = EBIT + depreciation and amortization = $30M + $12M = $42 million.

True or False: For a company with positive depreciation and amortization expense, EBITDA will always be greater than or equal to EBIT.

A.TrueCorrect. EBITDA = EBIT + D&A, and D&A is never negative, so EBITDA is always at least as large as EBIT.
B.FalseWrong. Since EBITDA is defined as EBIT plus a non-negative add-back, it cannot be less than EBIT.

Why: EBITDA equals EBIT plus depreciation and amortization. As long as D&A is zero or positive (which it always is), EBITDA must be greater than or equal to EBIT.

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