EBITDA refers to Earnings Before Interest And Tax, Depreciation and Amortization.

EBITDA applies in determining the income generation power of a project or a company in a circumstance where tax regime is unfriendly. For example, when taxes are very high.

EBITDA is required in circumstances when the firm has invested in both tangible and intangible assets.

EBITDA is necessary to avoid instances where an asset or project may be undervalued.

EBITDA is used by investors who deal with buying and selling of real estates for profitability purposes.

EBITDA involves adding back depreciation and amortization values of a company to its EBIT.

About the Author - Dr Geoffrey Mbuva(PhD-Finance) is a lecturer of Finance and Accountancy at Kenyatta University, Kenya. He is an enthusiast of teaching and making accounting & research tutorials for his readers.