What is EBITDA, and why do companies quote it?

EBITDA is built up from operating profit by adding back costs. "Adjusted" EBITDA adds back more, and the company decides what.

EBITDA stands for earnings before interest, tax, depreciation and amortisation. It takes operating profit and adds back depreciation and amortisation: the yearly charges for wearing out the assets a company has already paid for.

The idea is to show how much a business makes from its customers before the cost of its past investment and the way it is funded. That makes it popular with lenders and buyers, who want to know how much cash the business throws off to pay interest and repay debt. Companies with large networks, such as telecoms and water firms, quote it because their depreciation is so big.

What it leaves out still costs money. Depreciation is the accounting cost of equipment the company has had to buy and will have to replace. Most interest is paid in cash. Because it adds costs back, plain EBITDA is never lower than operating profit, and a company can report a large EBITDA while making a loss.

Virgin Media O2's group accounts for 2025 show revenue of £10,113.1m, an operating loss of £316.9m and, after £1,474.4m of net finance costs, a pre-tax loss of £1,754.1m.

Its headline measure is adjusted EBITDA of £3,879.5m. To get there from the operating loss it adds back four things: £3,045.5m of depreciation and amortisation, a £1,021.7m write-down of goodwill (the part of the value of the businesses that formed the company that could not be pinned to specific assets), £76.4m of share-based pay and £52.8m of restructuring and other operating costs.

Per £100 of revenue that is the difference between a £3.13 operating loss and £38.36 of adjusted EBITDA. Most of the gap is depreciation and amortisation: £30.11 of every £100, mostly the cost of the mobile and broadband networks the company runs, plus the spectrum licences and customer contracts it holds.

EBITDA is not cash in the bank. In the same year Virgin Media O2 paid £1,207.5m of interest and added £2,089.2m of property and equipment. Its own measure of adjusted EBITDA less capital spending was £1,645.5m.

It means the company has chosen to leave out more costs than depreciation and amortisation. Neither UK company law nor the accounting standards define EBITDA or adjusted EBITDA, so each company writes its own definition and should show how it reconciles to the statutory figures.

Virgin Media O2 says so in its accounts: "The exclusion of certain items may result in a more favourable view when costs such as depreciation and amortisation, restructuring and other operating expenses are excluded. These measures may not be comparable when reviewing similar measures reported by other companies." It also changed its definition from 2025: in the accounts' words, 'the definition of Adjusted EBITDA includes Opex Costs to Capture' (p. 169), so those costs now count against the figure rather than being left out.

Other companies use other measures. ITV quotes adjusted EBITA, which adds back amortisation but still charges depreciation. Its 2025 statutory operating profit was £363m. Adding back £107m of exceptional items and £63m of amortisation and impairment gives £533m, and ITV's adjusted figure of £534m adds £1m of production tax credits. On its adjusted basis ITV's pre-tax profit was £448m, against £338m in the statutory accounts.

When you see an adjusted figure, find the reconciliation, usually in a note headed alternative performance measures, and read what has been added back. Costs that come back year after year, as restructuring often does, are still costs.

Because loans are often measured against it. The most common test is leverage: net debt divided by EBITDA, which says roughly how many years of EBITDA it would take to pay off the debt.

Virgin Media O2's owners have agreed it will be managed with a target leverage of between 4.0 and 5.0 times adjusted EBITDA, as defined in their shareholders' agreement. ITV reported net debt of £566m at the end of 2025, 1.0 times its adjusted EBITDA, and its bank facilities require leverage below 3.5 times on the lenders' own definition.

Pay can depend on it too. Virgin Media O2 says adjusted EBITDA is used to judge its management for annual and other incentive pay. That is one more reason to read the definition, not just the number.

Usually not on the profit and loss account itself. The layouts set out in UK company law run from turnover through costs, interest and tax to profit for the year, and have no EBITDA line.

Companies that use EBITDA put it in the front half of the annual report: the highlights page, the strategic report or the financial review. Larger companies add a note, often called alternative performance measures, that defines it and reconciles it to operating profit or net profit. For Virgin Media O2 that is note 33.

To work out plain EBITDA yourself, take operating profit from the profit and loss account and add depreciation and amortisation, which you will find in the notes on operating costs or fixed assets, or in the cash flow statement.