You will find EBITDA as an important figure in many financial publications. Also in football clubs’ and football associations’ financial reports. But, what is it?
That is an acronym for earnings before interest, taxes, depreciation, and amortization. Nowadays EBITDA is a measure of a company’s overall financial performance. Some analysts even use it as an alternative to net income. In football, that is often the case.
It is a more precise measure of corporate performance since it is able to show earnings before the influence of accounting and financial deductions. This metric is the most precise one in determining the profitability of a football club.
The usual way to calculate this is to use earnings before tax and then calculate depreciation and amortization into it. So it’s eventually net income with interest, taxes, depreciation, and amortization added back.
EBITDA offers a clearer reflection of operations by stripping out expenses that can obscure how the company is really performing. Some football clubs could have a big net income. But when you add back all other expenses, they could be in a financial problem.
Interest expenses and interest income are added back to net income. That neutralizes the cost of debt, as well as the effect interest payments, have on taxes. Income taxes are also added back to net income, which does not always increase EBITDA if the company has a net loss. But if football clubs emphasize too much on their EBITDA, it could be true that they have a very low net income.