Week 31 Day 3 Action Items

Day 3

• [ ] Familiarize yourself with critical financial metrics like ROI, EBITDA, and liquidity ratios.
• [ ] Understand how these metrics indicate your business's financial health.

ROI & Liquidity Ratios

Revisit Week 13 for a more detailed explanation of these financial metrics.

EBITDA:

EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, is a measure of a company's operating performance. It is calculated by adding back depreciation and amortization expenses, as well as interest and taxes, to net income.

Here's the formula:

$$ EBITDA=Net Income+Interest+Taxes+Depreciation+Amortization $$

• Net Income is the company's total profit after deducting all expenses, including operating expenses, interest, and taxes.
• Interest refers to the interest expenses paid on loans or other forms of debt.
• Taxes are the income taxes paid by the company.
• Depreciation represents the decrease in the value of tangible assets over time, such as equipment, machinery, or buildings.
• Amortization refers to the gradual write-off of intangible assets, such as patents, copyrights, or trademarks, over their useful life.