A new study compares earnings before interest, taxes and amortization (EBITA) with its two more common alternatives—EBIT and EBITDA—in terms of their ability to explain market valuations and predict stock returns. From 1987 to 2016, EBITDA performed better than EBITA, which in turn performed better than EBIT, both in explaining stock prices and predicting stock returns. However, EBITDA’s dominance over EBITA in explaining valuations has been declining over time, while the performance difference between EBITA and EBIT has been increasing. “EBITDA, EBITA, or EBIT?” is by Doron Nissim (Columbia Business School).
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