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Questions and Answers
Which of the following best defines EBITDA?
Which of the following best defines EBITDA?
- Net income plus interest, taxes, depreciation, and amortization (correct)
- Net income minus interest, taxes, depreciation, and amortization
- Gross profit minus operating expenses
- Revenue minus cost of goods sold
What is the formula for calculating working capital?
What is the formula for calculating working capital?
- Revenue - cost of goods sold
- Net income / total assets
- Current assets - current liabilities (correct)
- Total assets - total liabilities
Which of the following is a common use of EBITDA?
Which of the following is a common use of EBITDA?
- To assess a company's debt levels
- To calculate a company's net income
- To determine a company's revenue
- To evaluate a company's operating performance (correct)
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Study Notes
Financial Metrics
- EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a financial metric that measures a company's profitability, excluding non-operating items.
Working Capital
- Working capital is the difference between a company's current assets and current liabilities, calculated using the formula: Working Capital = Current Assets - Current Liabilities.
EBITDA Use Cases
- A common use of EBITDA is to compare the financial performance of companies with different capital structures, taxation, and depreciation policies, as it eliminates these variables.
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