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Asked by Colby Nuccio on Jun 10, 2024

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

EBITDA

An acronym for Earnings Before Interest, Taxes, Depreciation, and Amortization, indicating a company's financial performance by measuring its profitability without considering financial, accounting, and tax effects.

Operating Income

The income generated from a company's primary business activities, before subtracting any interest and tax expenses.

Contribution Margin

The difference between the sales revenue of a product and its variable costs, used to cover fixed costs and generate profit.

  • Appreciate the role of EBITDA within the framework of internal decision-making.
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CJ
Christopher JenkersonJun 16, 2024
Final Answer :
True
Explanation :
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.

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