EBITDA removes a significant fixed and noncash cost from the operating income number and may approximate the contribution margin.

Question

Quizplus · Accepted Answer

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) removes interest, taxes, depreciation, and amortization from operating income, which are significant fixed and non-cash costs. This adjustment can provide a clearer view of a company's operational performance and its ability to generate cash flow from its core business activities, similar to the concept of contribution margin which measures the incremental profit earned for each unit sold.

EBITDA Removes a Significant Fixed and Noncash Cost from the Operating