EBITDA

EBITDA is popular because it strips out financing and accounting choices, letting two companies be compared on operations alone, and because it approximates cash generation before working capital and capital expenditure. That approximation is exactly where it misleads: depreciation is not a fictional charge, it is the spread-out cost of assets that will have to be replaced. For capital-intensive businesses EBITDA systematically overstates economic profit, which is why it is the favourite metric of highly leveraged and asset-heavy companies. It is not a standard under Indian accounting rules, so its exact composition varies between companies and must be checked.