Sur

name1

St
udent
’sName

Pr
ofessor
’sName

Cour
se

Dat
e

EBI
TIDA

Ear
ningsbef
orei
nter
est
,tax,
depr
eci
ati
on,
andAmor
ti
zat
ion(
EBTI
DA)measur
es

andev
aluat
est
heoper
ati
ngper
for
manceofaf
ir
m wi
thoutconsi
der
ingbot
hthe

f
inanci
alandaccount
ingdeci
sions.Hence,
all
owi
ngf
inanci
alanal
yst
stof
ocuson

deci
si
onsbasedont
heoper
ati
ngact
ivi
ti
esofabusi
nessent
it
y.I
nmostcases,
EBI
TDA

i
susedi
ncompani
est
hathav
eal
argeracqui
sit
ionoff
ixedasset
ssuchast
he

manuf
act
uri
ngcompani
es.Tocal
cul
ateEBI
TDA,
thei
nter
est
,depr
eci
ati
on,
and

amor
ti
zat
ionar
eaddedbackt
otheneti
ncomeofacompany
.Int
hiscase,
themanager

usest
heEBTI
DAt
omakeherpr
oposal
mor
eappeal
i
ngt
owar
dst
heappr
oval
oft
he

budgetpr
ocess.I
tisev
identi
nawayt
hatt
hemanagercanbaseherar
gumentont
he

f
actt
hatt
heEBTI
DAmar
ginr
ati
ooft
hecompanyi
nthaty
eari
smor
eappeal
i
ngsi
ncei
t

r
epr
esent
sthecashpr
ofi
tst
hatt
hecompanygener
atesf
rom oper
ati
onsr
elat
ivet
oit
s

t
otal
rev
enues.TheEBI
TDAr
ati
oiscal
cul
atedasf
oll
ows:

EBTI
DAmar
ginr
ati
o=EBTI
DA/Sal
es

=15333÷2587613

=0.
59%

Thr
ought
heEBI
TDAmar
gin,
iti
sev
identt
hatt
hecompany
’sear
ningsar
est
abl
e.
 Sur
name2

Hence,
themanagerusest
hisf
actt
omaket
hepr
oposal
mor
eappeal
i
ngsi
ncei
nvest
ors

wi
l
lchooseacompanyt
hathasst
abl
eear
ningsov
eronet
hathaspr
ofi
tabi
l
ityi
ssues.

Si
mil
arl
y,t
hemanagert
akesi
ntoconsi
der
ati
onEBTI
DAbef
oret
axesand

expendi
tur
esoncapi
tal
areaccount
edf
ori
nthaty
ear
.Ther
efor
e,t
heef
fect
sofnon-

cashexpensessuchasdepr
eci
ati
onandamor
ti
zat
ionar
eel
i
minat
ed.So,
inv
est
orsar
e

i
naposi
ti
ont
odet
ermi
net
het
otal
amountofmoneyt
hef
ir
m gener
atesf
rom i
ts

r
evenuesandmakecompar
isonswi
thot
herf
ir
msi
nthesamei
ndust
ry.Bydoi
ngso,
the

manageri
sabl
etoconv
incet
hecompanyt
oappr
oveherbudgetasi
tat
tr
act
smor
e

i
nvest
orsandhencel
eadst
ohi
gherpr
ofi
ts.