If you’re a business owner, you’ve probably heard the term EBITDA thrown around in meetings.
It sounds technical. Complicated. Maybe even intimidating.
But it doesn’t have to be.
Let me explain it the same way I would to my daughter.
EBITDA stands for:
Earnings Before Interest, Taxes, Depreciation, and Amortization.
That’s a mouthful — but the idea behind it is actually simple.
Why Is EBITDA Important?
EBITDA tells you how much money a business is generating from its core operations.
In other words:
👉 Is the business itself healthy?
👉 Is it producing real operating profit?
It strips away things like:
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Loan payments (interest)
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Government taxes
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Accounting adjustments like depreciation and amortization
What’s left is a clearer picture of how well the business runs day to day.
How Do You Calculate It?
Think of it in steps:
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Start with Revenue (all the money coming in).
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Subtract Cost of Goods Sold (COGS) to get your Gross Margin.
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Take your Gross Margin and subtract Operating Expenses like:
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Salaries
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Marketing
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Rent
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Legal and accounting
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Office supplies
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Software
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Insurance
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What you’re left with is essentially your EBITDA.
In Simple Terms…
EBITDA is a scorecard.
It tells you how profitable your company is from operations — before financing decisions and accounting rules get involved.
If you’re a business coach, entrepreneur, or leader, this is a number you should understand deeply.
Because at the end of the day:
Revenue is vanity.
Profit is sanity.
But EBITDA tells you how strong your engine really is.