Creative person working in corporate world. Can someone please help me understand:
\- EBITDA – what does this show compared to revenue??
\- What “below the line” and “above the line” means (like what is this line we’re talking about??”
my creative self thanks you in advance
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Revenue is All the money you get, without any subtractions.
Profit is what you get, when you take your revenue, and subtract out ALL your costs.
EBITA is “Earnings Before1.Interest2. Taxes and3. Amortization — which is short for depreciation and amortization
People sometimes like to use this number, and compare it to “EV” – Enterprise Value
When you try to think about the “Value” of a company, you often think about “How much money does this thing throw off”.
Sure, Interest and Taxes and Depreciation all are actual costs, but in some ways they aren’t really INTRINSIC costs to the business itself (machine Depreciation probably is, land amortizaion probably isn’t, so make your own calls about what you want to include). So if you want to think about a businesses POTENTIAL then maybe focusing JUST on revenue, or JUST on profit isn’t exactly right. So this is a slightly different metric kind of like “what is the INRINSIC revenue, unrelated to whatever costs the owners have saddled the firm with”.
Above the Line is TYPICALLY costs directly related to something sold (think flour for a cookie).
Below the Line is TYPICALLY Costs that have to do with the running of the business (think the rent on the store where you sell the cookie, but I mean, in some businesses that might be above the line)
The BOTTOM line is the total profit, after all revenues and costs have been determined.
(these phrases come from how an income statement is typically laid out)
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