A comparison of EBITDA, EBITA, and EBIT finds EBITDA remains the strongest measure for valuation, while EBITA has gained relevance as amortization and intangible assets have increased.
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Abstract
Over the past four decades, amortization charges have increased substantially, reflecting both economic changes and evolving accounting standards. In parallel, managers and investors have placed greater emphasis on performance measures that exclude amortization but retain depreciation (earnings before interest, taxes, and amortization [EBITA]). This study compares EBITA with earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation, and amortization (EBITDA). Using valuation multiples, EBITDA consistently exhibits the strongest association with market values, while EBITA outperforms EBIT, particularly as amortization has become more significant. However, when predicting stock returns, all three measures were informative prior to the financial crisis but have exhibited weaker predictive power since.