EBITDA and Credit Ratings

EBITDA is the single most widely used earnings measure in credit analysis because it approximates cash operating profit before the effects of financing and accounting choices.

Why EBITDA Rather Than Net Profit

EBITDA strips out interest, tax, depreciation, and amortisation, making it easier to compare the underlying operating performance of companies with different capital structures, tax positions, or asset ages. Since debt is serviced from operating cash flow, EBITDA is used as the anchor for both leverage ratios (Debt/EBITDA) and coverage ratios (EBITDA/Interest).

What to Watch For

Agencies scrutinise the quality of reported EBITDA — whether it includes one-off items, other income, or non-recurring gains that inflate the figure without reflecting a sustainable improvement in core operations. A rating rationale will often reference 'adjusted EBITDA' precisely because of this scrutiny.

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Disclaimer: This article is intended for general informational and educational purposes only and does not constitute financial, credit, investment, or legal advice. Credit ratings are assigned solely by SEBI-registered Credit Rating Agencies (such as CRISIL, ICRA, CARE Ratings, India Ratings, Brickwork, Acuite, and Infomerics) based on their own methodologies, policies, and the information available to them at the time of assessment. FinMen Advisors provides preparatory and advisory support to companies undergoing a rating exercise and does not issue, influence, or guarantee any rating outcome. Readers should exercise independent judgement and consult qualified professionals before making business or financial decisions.