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What does it mean when someone says "certain amount (ex 3 or

Customer Question
4) times EBITDA?" Also, what...
What does it mean when someone says "certain amount (ex 3 or 4) times EBITDA?" Also, what does the amortization in EBITDA mean for a business? What exactly are they paying to reduce net earnings?
Submitted: 4 years ago.Category: Tax
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Answered in 2 hours by:
8/4/2013
Tax Professional: Barbara, Enrolled Agent replied 4 years ago
Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 4,018
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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Welcome and thank you for giving me the opportunity to assist you with your tax question.

EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation, and
Amortization. It is a good beginning point to measure a company's potential value, and essentially it involves subtracting expenses from revenue EXCLUDING interest, taxes, depreciation and amortization. The resulting number gives a basic picture of the company's profitability as well as its ability to pay off what it owes.

It is worth mentioning that EBITDA does not conform to general accepting accounting principles, and therefore, adjustments can be made.

 

As to your first question, 3 or 4 times EBITDA is 3 or 4 times the resulting
number from the above formula.

 

As to your second question, amortization is excluded from the EBITDA.

As to your third question, I believe the answer is explained above.

 

The following is an excellent article which you might find useful as well:

http://www.inc.com/guides/2010/10/how-to-understand-earnings-or-ebitda.html

 

Please let me know if you require further information or clarification.

 

Thank you and best regards,

Barb



 



 



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Customer reply replied 4 years ago

Just to clarify, if I short an ETF, I don't pay the expense ratio because the lender is paying it, but I am obviously paying the margin fees for borrowing correct?

Tax Professional: Barbara, Enrolled Agent replied 4 years ago

Thank you for your follow-up question.

 

You are correct.

 

Thank you and best regards,

Barb

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