Earnings before interest, taxes, depreciation and amortization (or EBITDA) is equal to the gross margin (the difference between total sales revenue and total direct cost of sales) minus total operating expenses (tax-deductible expenses incurred in conducting normal business operations, such as wages and salaries, rent, and so on), plus any depreciation (The loss of value of assets over time) and amortization.

This is similar to earnings before interest and taxes (EBIT). The difference between the two is that EBIT subtracts all expenses, including depreciation, as an expense, and EBITDA subtracts all expenses except depreciation and amortization.

For more, check out: The 7 Key Metrics Every Business Owner Should Monitor.

Bplans GlossaryBplans Glossary

At Bplans, it's our goal to make it easy for you to start and run your business. The Bplans glossary of common business terms will help you learn about key small business and entrepreneurship topics.