“Stories and lessons from an unexpected journey in finance.”

Ever hear the term EBITDA thrown around in business meetings and wondered what it really means? Don’t worry—you’re not alone. Finance, like any business, has a language all its own. As part of The Accidental CFO series, I will occasionally use this blog to try to break down finance concepts into plain English. I hope you find this helpful.

What is EBITDA?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. In simpler terms, it’s a way to measure how much money a business makes from its core operations—before we worry about loans, taxes, or the slow wear-and-tear on equipment.

Why should we ignore taxes, depreciation, and amortization?

• Taxes: Different businesses pay different taxes, which can make comparisons tricky. Ignoring taxes gives a clearer picture of operational performance.
• Depreciation & Amortization: These are accounting adjustments that show how assets lose value over time. They’re real, but they don’t affect day-to-day cash from operations. Ignoring them helps you see the pure earnings from running the business.
• Interest: Loans affect how much cash is left, but they don’t reflect how well the business itself is performing.

EBITDA is essentially asking: “How good is this business at making money doing what it’s supposed to do?”

A Simple Analogy — The Lemonade Stand
Imagine you run a lemonade stand:

• You sell lemonade and make $100 (revenue).
• You spend $40 on lemons, sugar, cups, and maybe pay your little brother to help (expenses).
• You borrowed $20 to buy a fancy juicer (interest),
• You owe $10 in taxes (taxes),
• And your juicer slowly wears out over time (depreciation & amortization).

Your EBITDA is only:
💡 Revenue ($100) – Expenses ($40) = $60

You ignore the interest, taxes, and depreciation because EBITDA is all about how much money you earned from the core business activity itself—selling lemonade—without getting distracted by loans, taxes, or the juicer wearing out.

Real-Life Application
Business owners, investors, and managers use EBITDA to compare companies, evaluate operational performance, and make decisions about growth or investment. It’s a way to see the “pure engine” of a business.

Conclusion
EBITDA helps answer the question: “Is this business actually good at what it does?” Think of it as the part of the money that comes from doing what you’re best at. Am I any good selling lemonade?

Was this helpful? What other concepts would you like me to tackle? ROI, cash flow, or maybe the mysterious world of goodwill? Drop your ideas in the comments below!

#TheAccidentalCFO #EBITDA #FinanceMadeFun #CFOLife #inersec