Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a financial metric used to measure the core profits of a company. Many businesses and investors rely on EBITDA to measure the true profitability and success of a company.

EBITDA is calculated by starting with net income, and then adding back any expenses due to financing decisions, taxes, and discretionary depreciation schedules. This eliminates non-operating investments from the equation, thereby giving a better picture of true profits.

The advantages of using EBITDA are twofold. On one hand, it takes out items like interest expenses, which are dependent on a company's financing decisions and can vary from one company to another. On the other, it takes out depreciation expenses, which can inflate profits since they are often arbitrarily chosen and calculated.

However, many, including Warren Buffett, argue that EBITDA is meaningless since it omits capital costs and cannot be used to measure a company's long-term success or value. As such, the U.S. Securities and Exchange Commission (SEC) requires companies to reconcile any EBITDA figures they report with net income. Moreover, they are not allowed to report EBITDA per share.

Those considering using EBITDA in their analysis should be aware of its limitations, as it is unable to account for a range of non-cash charges and capabilities such as working capital and total capital expenditure. Therefore, it is often utilized in conjunction with other metrics such as Free Cash Flow (FCF). That said, EBITDA is a valuable tool used to measure the core profits of a business and can inform strategic decisions when used in the right context.