Plain definition
EBITDA means earnings before interest, tax, depreciation, and amortisation. It is a performance measure that excludes specified expenses; it is not cash flow because working capital, capital expenditure, taxes, interest, and other cash movements remain.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
Suppose EBIT is after depreciation and amortisation. Adding those non-cash expenses back gives EBITDA of . The company nevertheless pays for equipment and has of additional sales still in receivables.
With no other adjustments in this simplified comparison, those two cash uses leave before interest, tax, debt principal, and any other cash movements. A buyer reviewing the business asks for replacement spending and collection evidence before deciding what funding its earnings can support.
Why it matters
Excluding depreciation does not make replacement investment disappear; it only removes the accounting charge from this measure.
Practical consequence
Reconcile EBITDA from operating profit, list capital expenditure, tax, interest, and working-capital movements beside it, and avoid calling it free cash.