EBITDA is short for “earnings before interest, taxes, depreciation, and amortization”.
Although it can be used for other purposes, such as determining the value of a company, EBITDA is a term and concept used quite often in financing or loan transactions.
When preparing a DSCR calculation and a company’s cash flow must be determined, most frequently EBITDA will be the figure used. EBITDA is considered to be a more true representation of a company’s cash flow from operations mainly because it does not include any reductions for debt related activity such as interest expense or non-cash expenses such as depreciation or amortization. There are times when a loan document may have additional adjustments to a company’s earnings to arrive at a “modified” EBITDA figure and those additional adjustments will, almost always, be defined in the applicable loan documents.
