I asked an AI to explain EBITDA to me as if I were 12 years old. Here is what I got.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.
Let’s break that down in simple terms:
Imagine you run a lemonade stand. At the end of the day, you want to know how much money you really made from just selling lemonade, without worrying about other things like loans, taxes, or buying new equipment.
Earnings: This is the money you make from selling lemonade.
Before Interest: If you borrowed money to start your stand, you might have to pay back some of it. Interest is the extra money you pay for borrowing, but we don’t include that yet.
Taxes: The government might take a bit of your money as tax, but we won’t count that for now.
Depreciation: If your lemonade stand gets old and worn out, it loses value over time. We won’t think about that now either.
Amortization: If you bought something expensive for your stand, like a fancy juicer, you pay for it slowly over time. We’ll ignore that for now too.
So, EBITDA tells you how much money your lemonade stand really makes from selling lemonade before thinking about all these other expenses. It’s a way to see how the business is doing, just based on sales and day-to-day costs.
EBITDA is a way companies measure how much money they make before they have to pay certain things, like interest, taxes, and other expenses.
Imagine you run a lemonade stand. You make $100 selling lemonade, but before you can keep that $100, you have to pay for lemons, sugar, cups, and also pay a bit to the bank for borrowing money to buy supplies.
EBITDA is like saying, "Let’s first look at how much money the lemonade stand made without worrying about all those extra costs like borrowing money or paying taxes."
So, it’s a measure of how much the business is earning just from selling lemonade. It helps people see how well the business is doing, even before paying off other things.
Adjusted EBITDA is like taking the normal EBITDA (the money a business makes from just running) and then making a few extra changes to it.
Let’s go back to the lemonade stand. Imagine one summer, you have to pay for something unusual, like fixing a broken lemonade machine, or maybe you had to throw a big party to attract customers. These are costs that don’t happen all the time, so they aren’t part of the normal business.
Adjusted EBITDA is like saying, “Let’s ignore these one-time costs (like fixing the machine or the party) because they aren’t regular. This way, we can focus on how well the lemonade stand is doing during normal times.”
It helps people see how much money a business usually makes without being affected by rare or unusual expenses.
Normalized EBITDA is like making sure we see the true, normal earnings of a business by removing anything that doesn’t happen regularly.
Imagine your lemonade stand again. Some summers, you might have unusual things happen, like a huge lemonade festival where you make a ton of money, or maybe a super rainy summer where you don’t sell much. These things aren’t normal every year.
Normalized EBITDA takes your regular EBITDA and says, “Let’s adjust it so it shows what we usually make, without the big festival boost or the bad rainy season.” It smooths out those ups and downs to give a clear picture of what your lemonade stand makes in a typical summer, not counting special events or bad luck.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.
Let’s break that down in simple terms:
Imagine you run a lemonade stand. At the end of the day, you want to know how much money you really made from just selling lemonade, without worrying about other things like loans, taxes, or buying new equipment.
Earnings: This is the money you make from selling lemonade.
Before Interest: If you borrowed money to start your stand, you might have to pay back some of it. Interest is the extra money you pay for borrowing, but we don’t include that yet.
Taxes: The government might take a bit of your money as tax, but we won’t count that for now.
Depreciation: If your lemonade stand gets old and worn out, it loses value over time. We won’t think about that now either.
Amortization: If you bought something expensive for your stand, like a fancy juicer, you pay for it slowly over time. We’ll ignore that for now too.
So, EBITDA tells you how much money your lemonade stand really makes from selling lemonade before thinking about all these other expenses. It’s a way to see how the business is doing, just based on sales and day-to-day costs.
EBITDA is a way companies measure how much money they make before they have to pay certain things, like interest, taxes, and other expenses.
Imagine you run a lemonade stand. You make $100 selling lemonade, but before you can keep that $100, you have to pay for lemons, sugar, cups, and also pay a bit to the bank for borrowing money to buy supplies.
EBITDA is like saying, "Let’s first look at how much money the lemonade stand made without worrying about all those extra costs like borrowing money or paying taxes."
So, it’s a measure of how much the business is earning just from selling lemonade. It helps people see how well the business is doing, even before paying off other things.
Adjusted EBITDA is like taking the normal EBITDA (the money a business makes from just running) and then making a few extra changes to it.
Let’s go back to the lemonade stand. Imagine one summer, you have to pay for something unusual, like fixing a broken lemonade machine, or maybe you had to throw a big party to attract customers. These are costs that don’t happen all the time, so they aren’t part of the normal business.
Adjusted EBITDA is like saying, “Let’s ignore these one-time costs (like fixing the machine or the party) because they aren’t regular. This way, we can focus on how well the lemonade stand is doing during normal times.”
It helps people see how much money a business usually makes without being affected by rare or unusual expenses.
Normalized EBITDA is like making sure we see the true, normal earnings of a business by removing anything that doesn’t happen regularly.
Imagine your lemonade stand again. Some summers, you might have unusual things happen, like a huge lemonade festival where you make a ton of money, or maybe a super rainy summer where you don’t sell much. These things aren’t normal every year.
Normalized EBITDA takes your regular EBITDA and says, “Let’s adjust it so it shows what we usually make, without the big festival boost or the bad rainy season.” It smooths out those ups and downs to give a clear picture of what your lemonade stand makes in a typical summer, not counting special events or bad luck.
