[Complete Explanation] What is EBITA (Earnings Before Interest, Taxes and Amortization)?

When you open financial results materials, you may sometimes encounter unfamiliar alphabetical profit terms that are neither operating profit nor ordinary profit. EBITA. It is pronounced "ee-bee-ta." It frequently appears in materials for companies that have grown through repeated M&A, in securities analyst reports, and in business succession scenarios.

Similar terms include EBITDA (ee-bit-dee-ay) and also EBIT (ee-bit). Because the meaning changes with just a single different letter, it is easy for those unfamiliar with accounting to get confused.

In this article, I will explain EBITA from the ground up so that even those with zero bookkeeping knowledge will be able to say, "I see, that's what it means," by the time they finish reading. We will follow all numbers with concrete examples. Furthermore, I will also share a major decision made in the world of Japanese accounting standards in July 2026 that is directly linked to EBITA. Whether or not you know this point will change how you read financial statements over the next few years.

1. First, in 3 lines: What is EBITA?

Before getting into the details, I will provide the conclusion first.

EBITA is an acronym for Earnings Before Interest, Taxes and Amortization, and in Japanese, it is translated as "profit before interest, taxes, and goodwill amortization."

In practice, the calculation formula is almost always just this.

EBITA = Operating Profit + Goodwill Amortization

And as for why such an indicator is necessary, the reason can also be stated in one line: to compare companies that have engaged in M&A with those that have not using the same yardstick.

From here, I will carefully unpack these three lines.

2. Before that, a confirmation: There is not just one type of company profit

Before understanding EBITA, there is a premise that you absolutely must grasp. That is that "there is not just one type of company profit."

Even if the news says, "Company A's profit is 10 billion yen," the meaning is actually completely different depending on which profit it refers to. In Japanese financial statements (income statements), profit is calculated in five stages from the top down. Imagine descending a staircase one step at a time.

It is easier to understand if we have a concrete company, so in this article, we will use a fictional company, "Sample Trading," until the end. The numbers have been rounded for clarity.

1st step: Net Sales 50 billion yen
This is the total amount received from customers. This is the starting line.

2nd step: Gross Profit 20 billion yen
This is net sales minus the cost of sales (expenses incurred for purchasing or manufacturing) of 30 billion yen. It is called gross profit. It represents the thickness of the profit from the product itself.

3rd step: Operating Profit 3 billion yen
This is gross profit minus selling, general and administrative expenses (personnel costs, rent, advertising costs, and "goodwill amortization," which will be the main character later) of 17 billion yen. It is the most watched profit, indicating how much was earned from the core business.

4th step: Ordinary Profit 2.6 billion yen
This is operating profit adjusted for non-operating income and expenses. Sample Trading added 100 million yen in interest income and subtracted 500 million yen in interest payments on borrowings to reach 2.6 billion yen. Financial activities, in other words, the weight of debt, come into play here.

5th step: Net Income 1.8 billion yen
This is the profit that ultimately remains for the company, calculated by adjusting ordinary profit for extraordinary gains and losses and subtracting 800 million yen in corporate taxes, etc.

What is important here is that the expense called "goodwill amortization" is mixed into the 3rd step, operating profit. Of Sample Trading's 17 billion yen in SG&A expenses, 2 billion yen was goodwill amortization. This 2 billion yen is the very reason why the indicator called EBITA was born.

3. The true nature of EBITA is 'Operating Profit + Goodwill Amortization'

Let's break down the English term EBITA once more.

E = Earnings
B = Before
I = Interest
T = Taxes
A = Amortization

In other words, it is 'profit before deducting interest, taxes, and amortization'.

Following the strict definition, it is calculated as follows:

EBITA = Profit Before Income Taxes + Interest Expenses - Interest Income + Amortization of Intangible Assets

Let's calculate this using Sample Trading Co. as an example.

Profit Before Income Taxes 2.6 billion yen + Interest Expenses 0.5 billion yen - Interest Income 0.1 billion yen = 3.0 billion yen
3.0 billion yen + Goodwill Amortization 2.0 billion yen = EBITA 5.0 billion yen

On the other hand, a simpler shortcut is used in practice.

EBITA = Operating Profit 3.0 billion yen + Goodwill Amortization 2.0 billion yen = 5.0 billion yen

The answer is the same 5.0 billion yen. In Japanese income statements, operating profit is already 'profit before interest and taxes,' so you can arrive at EBITA simply by adding back the goodwill amortization. This is the convenient part of Japanese financial statements.

If you see the term 'Operating Profit Before Goodwill Amortization' in financial briefing materials, you can safely assume it essentially refers to EBITA.

I will add one small supplementary point. The 'A' (Amortization) in EBITA generally refers to the 'amortization of intangible fixed assets' as a whole. This includes not only goodwill but also in-house software, patent rights, trademark rights, and customer relationship assets recognized at the time of acquisition. However, for Japanese listed companies, goodwill amortization is often overwhelmingly the largest amount, so in practice, it is almost always explained as 'A = Goodwill Amortization.' This article will also proceed according to that convention.

4. What exactly is 'Goodwill'?

Understanding EBITA is almost the same as understanding goodwill. We will spend some time on this.

Goodwill is the difference between the amount paid when acquiring a company and the net assets of the company purchased.

For example, suppose you buy a popular local soba noodle shop. The net assets of the shop (store equipment, tableware, inventory, deposits, etc.) minus liabilities (loans, accounts payable) were 100 million yen. However, the seller says, 'I won't sell it unless it's 300 million yen.' You want it anyway, so you buy it for 300 million yen.

In this case, in addition to the 100 million yen worth of assets recorded on the books, you have purchased 'something' worth the 200 million yen difference. That 'something' is value that cannot be price-tagged, such as brand power that creates lines of customers, a list of regular patrons, a secret soup recipe, skilled craftsmen, and a good location.

This 200 million yen is goodwill. The Japanese term 'noren' comes from the shop curtain (noren) hung at the storefront. The idea is that the curtain is imbued with many years of trust. In English, it is called 'Goodwill' (benevolence/favor).

This is the important part. Under Japanese accounting standards, goodwill recorded in this way must be systematically expensed over a period of up to 20 years. This is goodwill amortization.

If you amortize 200 million yen of goodwill over 20 years, it becomes an expense of 10 million yen each year. If you amortize it over 10 years, it is 20 million yen each year.

And this expense is included in selling, general and administrative expenses. In other words, it directly hits operating profit.

Sample Trading Co. is a company that has acquired several companies in the past, and its annual goodwill amortization expense is 2 billion yen. Therefore, even though it is earning 5 billion yen in terms of its core business performance, the operating profit recorded on the financial statements ends up being 3 billion yen.

Here, I will delve a little deeper into the practical details. In an actual acquisition, the difference between the purchase price and net assets is not entirely turned into "goodwill." Immediately after the acquisition, the assets of the purchased company are re-evaluated at fair market value, and valuable items that were not on the books are recognized as assets one by one. This process is called Purchase Price Allocation (PPA).

Typical items identified at this time include trademark rights, patent rights, technical assets, and customer relationship assets (the value of the fact that transactions with existing customers will continue in the future). These are treated as intangible fixed assets and are amortized over their respective estimated useful lives. The remaining portion that could not be identified individually is finally recorded as "goodwill."

The reason I brought this up is that this is why the 'A' in EBITA is not originally just 'goodwill.' Amortization expenses for intangible assets created through acquisitions may be listed on a different line from goodwill amortization expenses. If you want to calculate EBITA strictly, it is theoretically correct to add back these intangible asset amortizations associated with acquisitions as well. When EBITA is used in documents for overseas companies, this 'amortization of intangible assets recognized through acquisition' is often added back.

However, in the disclosures of Japanese listed companies, while goodwill amortization is disclosed independently, amortization of intangible assets associated with acquisitions is often lumped together with other amortization expenses. Therefore, in practice in Japan, EBITA generally refers to 'operating profit + goodwill amortization.' This article will also proceed according to that practice. Please prioritize being able to use it over strict accuracy.

5. Why add back goodwill amortization?

The question, 'An expense is an expense, right? Why is it okay to add it back?' naturally arises. This is the core of EBITA. There are three main reasons.

The first reason is that goodwill amortization is an expense that does not involve cash outflow.

The 300 million yen acquisition price was paid once at the moment of purchase. For the next 20 years, 10 million yen does not flow out somewhere every year. In accounting terms, it is just allocating money paid in the past to expenses little by little later. Therefore, when you want to see the cash-generating power that the company actually earned in that year, it is closer to reality to add it back once.

The second reason is that there is a wide range in how the amortization period is determined, and it varies from company to company.

As long as it is within 20 years, it can be 5, 10, or 20 years. For the same 10 billion yen of goodwill, a 5-year amortization results in an annual expense of 2 billion yen, while a 20-year amortization results in an annual expense of 500 million yen. There is a 1.5 billion yen difference in operating profit. In other words, operating profit fluctuates depending on the accounting policy choices of management. EBITA removes that influence.

The third reason is that companies that have engaged in M&A look too disadvantaged.

Goodwill does not arise for companies that have grown their business on their own. On the other hand, for companies that have acquired the same business, goodwill arises, and amortization expenses weigh on them every year. Even though the content of the business and the earning power are exactly the same, the operating profit of the one acquired through M&A appears smaller. This makes comparison impossible. EBITA is a yardstick to eliminate this unfairness.

This is precisely why companies that have grown through M&A use EBITA or EBITDA, rather than operating profit, as their key performance indicator (KPI) in their financial results briefing materials.

6. Organizing the four siblings: EBIT, EBITA, EBITDA, and Operating Profit

Now that we have come this far, let's organize these four confusing terms at once. The only difference is 'what to add back.'

Operating profit is the figure as it is on the Japanese income statement, with nothing added back. For Sample Trading Co., it is 3 billion yen.

EBIT is profit before interest and taxes are deducted. It has almost the same meaning as operating profit. For Sample Trading Co., it is 3 billion yen. It is a term often used in comparisons with overseas companies.

EBITA is EBIT with the amortization of intangible assets, such as goodwill, added back. For Sample Trading, this is 5 billion yen.

EBITDA is EBITA with the depreciation of tangible fixed assets (Depreciation—the amortization of factories, machinery, buildings, etc.) added back. Since Sample Trading's depreciation expense is 1.5 billion yen, it becomes 5 billion yen + 1.5 billion yen, totaling 6.5 billion yen.

Whether the 'D' is included is the sole and greatest difference between EBITA and EBITDA.

This is actually quite fundamental, so I will explain a bit more. Factories and machinery wear out when used. If the equipment is not replaced in 10 years, the business cannot continue. In other words, depreciation expense has the character of a 'notice of money that will go out again in the future.' There has long been criticism that EBITDA, which adds this back, makes the burden of capital investment invisible.

In that respect, EBITA keeps depreciation properly deducted. It honestly reflects the burden of equipment while removing only the accounting allocation known as goodwill amortization. Therefore, EBITA is sometimes evaluated as a profit closer to the actual situation than EBITDA.

On the other hand, EBITDA is overwhelmingly more widespread globally and is displayed as a standard in stock price information services and corporate databases. EBITA is often not listed in databases, so you have to calculate it yourself. The practical sense is that EBITDA is for convenience, while EBITA is for precision.

In capital-intensive industries (such as steel, chemicals, semiconductors, and telecommunications, which have large facilities), EBITDA is preferred, while EBITA comes into play more in service industries and software businesses where people and brands are the core assets, as well as in companies that frequently make acquisitions.

7. The profit of the same company changes between Japanese GAAP and IFRS

From here on, I will talk about why EBITA is not just a niche indicator, but is absolutely necessary in practice.

There are mainly two accounting rules in the world: Japanese accounting standards (Japanese GAAP) and International Financial Reporting Standards (IFRS). Even among listed companies in Japan, there is an increasing number of examples of companies adopting IFRS, especially those with advanced overseas expansion.

There is a decisive difference between these two regarding the treatment of goodwill.

Under Japanese GAAP, goodwill is systematically amortized within 20 years. Expenses are incurred every year without fail.

Under IFRS, goodwill is not amortized. Instead, its value is verified every year to see if it has diminished (impairment test), and a loss is recorded in a lump sum only when it is judged that the value has fallen.

In other words, for an IFRS company, as long as the acquisition is going well, the expenses related to goodwill are zero.

Returning to Sample Trading. If this company were to adopt IFRS, the 2 billion yen in goodwill amortization would be removed from the 17 billion yen in SG&A expenses, making the SG&A expenses 15 billion yen. Then, the operating profit would be 5 billion yen.

It is the same company, the same business, and the same earning power, yet it is 3 billion yen in operating profit under Japanese GAAP and 5 billion yen under IFRS. In terms of operating profit margin, it is 6.0% versus 10.0%. The appearance changes this much.

So, how can we compare these two companies fairly? We should add the goodwill amortization expense back to the operating profit of the Japanese GAAP company. 3 billion yen + 2 billion yen = 5 billion yen. It is now on exactly the same playing field as the 5 billion yen of the IFRS company.

This added-back figure is precisely EBITA. EBITA is a common language for comparing companies across different accounting standards.

I should also touch upon the risk that IFRS carries in exchange for not amortizing. When an acquired business fails to earn as expected, an IFRS company may record an impairment loss of tens or hundreds of billions of yen at once. Since Japanese GAAP turns it into an expense little by little every year, it is less likely to produce a sudden large loss, but the profit in normal times looks thinner. It is not a simple matter of which is superior; it is more accurate to understand that the way risks appear is different.

8. In July 2026, the debate over 'non-amortization of goodwill' in Japan was settled

This is the latest point of discussion that I most want to convey in this article.

In Japan, there have been voices for many years asking for 'goodwill to not be required to be amortized.' This was raised as a desperate request, especially by startups and emerging companies that place M&A at the core of their growth strategies. The argument is that every time they make an acquisition, their operating profit is reduced, making them appear to be in the red, which puts them at a disadvantage in fundraising and talent acquisition.

This movement gained full momentum between 2025 and 2026. Let's organize it chronologically.

On May 30, 2025, the Japan Association of Corporate Executives, jointly with startup-related organizations and volunteer corporate executives, submitted a proposal titled 'Introduction of Non-Amortization of Goodwill and Change in Classification of Goodwill Amortization Expenses' to the Business Accounting Council. Ultimately, it reached a scale involving 12 organizations, 35 startups, and 138 corporate executives.

In the same month of May 2025, the Cabinet Office's Council for Promotion of Regulatory Reform also submitted a report on reviewing goodwill accounting practices to promote the growth of startups.

From August 2025 to February 2026, the Accounting Standards Board of Japan (ASBJ) held eight public hearings to listen to a wide range of opinions from scholars, companies (preparers), investors (users), and auditors.

On April 1, 2026, the Financial Accounting Standards Foundation published an official request for information and solicited opinions widely. In June 2026, the Japanese Institute of Certified Public Accountants submitted its opinion.

Then, on July 27, 2026, a conclusion was reached at the 57th Business Accounting Council.

The basic accounting framework of amortizing goodwill over a certain period will not be changed. In other words, the introduction of non-amortization of goodwill will be shelved.

It was decided that Japan will continue to be a country that amortizes goodwill. It is reported that the reasons strongly cited were that comparability would be impaired and that there were concerns about irreversibility, as it would be extremely difficult to revert once it was changed to non-amortization.

However, there is a sequel to this resolution. At the same time, the Advisory Council recommended two new themes to the ASBJ.

The first is to address practical issues surrounding amortization periods and methods. This involves considering how to make the current wording of 'straight-line method or other reasonable methods within 20 years' more explicit.

The second is of significant importance to investors. It is a review of how information on operating profit before goodwill amortization is provided. The direction indicated is to have it disclosed institutionally in financial results summaries and to create an environment where investors can easily use indicators such as EPS (Earnings Per Share), PER (Price-to-Earnings Ratio), and ROE (Return on Equity) based on profit before goodwill amortization.

Operating profit before goodwill amortization is, in other words, EBITA.

In short, the world of Japanese accounting has steered in the direction of 'we will not stop goodwill amortization. However, we will properly disclose information on profit before goodwill amortization, i.e., EBITA.' The importance of EBITA, the theme of this article, has not decreased due to this conclusion; rather, it can be said that it has increased.

For reference, let's also look at international trends. The IASB (International Accounting Standards Board), which creates IFRS, also discussed for a long time whether to return to goodwill amortization, but in 2022, it confirmed its policy of maintaining the current non-amortization model. On March 14, 2024, it published an exposure draft titled 'Business Combinations—Disclosures, Goodwill and Impairment,' shifting the focus of the discussion from 'amortization vs. non-amortization' to 'how to ensure the timeliness and transparency of information under non-amortization.' It is a common trend that both Japan and the world are moving toward improving the quality of disclosure rather than changing the framework.

9. What is EBITA used for: In the field of corporate valuation

Now that we understand the logic, let's look at where EBITA is actually used. Its biggest use is in determining the price of a company.

When buying a company or investing in stocks, you must decide 'how much is this company worth?' This is where the concept of the EV/EBITDA multiple, or EV/EBITA multiple, is widely used. It is also called the multiple method.

First, we calculate the EV (Enterprise Value).

EV = Market Capitalization + Interest-bearing Debt - Cash and Deposits

Why add debt and subtract cash? When buying an entire company, the buyer not only pays the purchase price for the shares but also assumes the company's debt. On the other hand, the cash in the company's vault becomes the buyer's own the moment the purchase is made, which effectively reduces the burden. Therefore, this formula represents the amount truly required for the acquisition.

Let's calculate using Sample Trading Co. as an example. If the market capitalization is 30 billion yen, interest-bearing debt is 20 billion yen, and cash and deposits are 5 billion yen,

EV = 30 billion yen + 20 billion yen - 5 billion yen = 45 billion yen

Divide this by EBITDA.

EV/EBITDA Multiple = 45 billion yen / 6.5 billion yen = approximately 6.9x

If dividing by EBITA,

EV/EBITA Multiple = 45 billion yen / 5 billion yen = 9.0x

Intuitively, you should understand the meaning of this multiple as follows: How many years will it take to recover the money needed to buy the entire company using the profit the company generates in one year? If it is 6.9x, it means the investment will be recouped in approximately 7 years.

The basic way to read this is that a lower multiple indicates it is undervalued, while a higher multiple indicates it is overvalued.

10. Industry-specific benchmarks for EV/EBITDA multiples

However, what constitutes a 'cheap' multiple varies significantly by industry. It is faster to look at actual data here.

According to a database automatically extracted from securities reports submitted to EDINET, the latest annual EV/EBITDA multiples for 3,132 listed Japanese companies have an average of 13.69x and a median of 7.42x. The reason the average and median are so far apart is that some high-growth companies have extremely high multiples, which pulls up the average. In practice, the median is used as a benchmark because it is less susceptible to the influence of outliers.

Looking at the medians by industry, the picture becomes clearer.

Transportation equipment is the lowest at 4.18x, followed by air transportation at 4.94x, steel at 5.51x, and metal products at 5.68x, showing a trend of heavy and large-scale manufacturing industries. Industries with heavy equipment, susceptibility to economic cycles, and modest growth expectations tend to have lower multiples.

In the middle tier are chemicals at 6.58x, machinery at 6.58x, wholesale trade at 6.84x, electrical appliances at 6.87x, services at 7.23x, and construction at 7.47x.

On the higher end, precision instruments are at 8.01x, information and communications at 8.03x, and warehousing and transportation-related services at 8.24x, with the highest being the real estate industry at 10.11x.

Generally, the benchmark for listed companies is said to be around 8x to 10x, and anything below that is considered undervalued. On the other hand, in M&A for small and medium-sized enterprises, a level of 3x to 5x is considered standard, which is significantly lower than for listed companies. This is because the smaller the scale, the more the risks associated with a change in management and concerns about business continuity are reflected in the price.

As a practical example, it is known that Nidec (formerly Nippon Nidec) had a rule of 'EV/EBITDA of 7x or less' as an internal criterion for acquisitions. This multiple has been used as a discipline to avoid overpaying.

However, industry averages are merely a starting point. Even within the same information and communications industry, a company growing at 20% per year and a company with flat growth will naturally have different multiples. Think of the multiple not as an 'answer' but as a 'tool for asking questions.' If this company has a higher multiple than the industry average, does it have the growth or barriers to entry to justify it? If it is lower, what is the market worried about? It is a starting point for thinking about those things.

11. Six Pitfalls of EBITA

I have explained the benefits of EBITA so far, but it is not a panacea. In fact, it is a metric that can be dangerous if used incorrectly. Here are six pitfalls.

The first pitfall is that EBITA is not cash flow itself.

I explained it as a 'figure that adds back expenses that do not involve cash outflows,' but EBITA does not necessarily match the cash on hand. If accounts receivable increase, sales are recorded, but cash does not come in. If inventory piles up, cash has gone out, but it does not become an expense. Changes in working capital are not reflected in EBITA at all. If you want to know the true movement of cash, you need to look at the operating cash flow in the cash flow statement.

The second pitfall is that the burden of debt is not visible.

EBITA is profit before interest payments. In other words, it puts companies riddled with debt and debt-free companies on the same playing field. In reality, companies with heavy borrowing have far less cash on hand even if their EBITA is the same, and if interest rates rise, they will suddenly be in trouble. When looking at EBITA, always check the amount of interest-bearing debt and the ratio of interest-bearing debt to EBITA (interest-bearing debt ÷ EBITA, net debt ratio) as a set. Companies with a high ratio have fragile finances, even if their EBITA looks impressive.

The third pitfall is that it masks overpaid M&A deals.

This is the point that requires the most caution. Adding back amortization of goodwill also means erasing the result of 'how much it was acquired for' from the profit calculation. To put it extremely, if you buy a company worth only 1 billion yen for 10 billion yen, it will have no impact on EBITA. The worse the acquisition, the more invisible it becomes to investors who only look at EBITA.

Regarding this point, companies that actively engage in M&A are conscious of their accountability. For example, GENDA, in its Q&A for investors, explained the reason for using EBITDA as a KPI, and then directly addressed the question, 'If we evaluate using a metric that does not consider goodwill amortization, does it mean it doesn't matter how high the purchase price is?' and answered that it does not. Those who use the metric must also always keep this question in mind.

The fourth pitfall is the existence of impairment risk.

Goodwill is recorded as an impairment loss all at once when the acquired business fails to earn as planned. A company that you thought was 'doing well' by looking at EBITA might suddenly announce an impairment of tens of billions of yen one day. EBITA does not reflect the risk of this time bomb. How large the goodwill balance on the balance sheet is relative to total assets or equity is an item that should always be checked. Companies where goodwill exceeds equity may be at risk of approaching insolvency if an impairment occurs.

The fifth pitfall is that the definition is not standardized.

Neither EBITA nor EBITDA has a formal definition in Japanese accounting standards or IFRS. They are figures that companies define and disclose on their own. Therefore, figures that add back temporary expenses, M&A-related expenses, stock-based compensation expenses, etc., one after another under names like 'Adjusted EBITA' or 'Adjusted EBITDA' may appear. You cannot know what has been added back and to what extent without reading the notes in the financial statements. The more adjustment items a company has, the more cautiously you need to look at it.

The sixth pitfall is that it is suitable for some industries and not for others.

If you look only at EBITDA in industries with heavy equipment investment or capital-intensive industries, the burden of equipment renewal disappears, making it look better than the reality. EBITA is slightly better because it subtracts depreciation, but even so, because the size of goodwill differs by industry, there is almost no point in using EBITA for comparisons between industries with little goodwill. There are many situations where it is better to simply compare operating profit.

12. Calculating it yourself: Where to look in the financial statements

Anyone can calculate EBITA themselves if it is a listed company. There are three steps.

The first step is to find the operating profit.

It is listed on the first page of the financial results summary or in the consolidated statement of income in the securities report. You won't get lost here.

The second step is to find the goodwill amortization expense. This part requires a little bit of a trick.

The most reliable method is to check the operating activities section of the consolidated statement of cash flows. Starting from net income for the period, there is a section where non-cash expenses are added back, and in almost all cases, there is a separate line item for "amortization of goodwill." It is usually located right next to the depreciation expense line.

Another way to find it is in the notes to the securities report. Amortization of goodwill is sometimes listed within the notes that detail the major items and amounts of selling, general, and administrative expenses. It may also be listed in the notes regarding segment information.

The third step is addition.

Operating Profit + Amortization of Goodwill = EBITA

That is all. If you also add depreciation, you get EBITDA.

Once calculated, dividing by net sales to get the margin makes it easier to compare with other companies. For Sample Trading Co., the operating profit margin is 6.0%, the EBITA margin is 10.0%, and the EBITDA margin is 13.0%. The further apart these three figures are, the more you can tell that the company is one "built through acquisitions and capital investment."

To take it a step further, try lining up the figures from the last three to five fiscal periods. A company where EBITA is growing but operating profit is not is a company where goodwill amortization is ballooning due to continued acquisitions. Conversely, a company where both EBITA and operating profit are growing at the same rate is a company that is developing its own earning power. This difference becomes visible just by lining up the numbers from the financial statements.

13. Five Checkpoints for Investors and Business Professionals

Here are five points I want you to always check together when looking at a company using EBITA.

The first checkpoint is: what is the difference between operating profit and EBITA?

The larger the difference, the more the company's profits are created through acquisitions. If the difference is almost zero, it is a company that has grown on its own. It is not a matter of which is better or worse, but a difference in character regarding what the engine of growth is. However, for companies with a large difference, the next item becomes important.

The second checkpoint is: what percentage of equity is the goodwill balance?

Goodwill is listed under intangible fixed assets on the balance sheet. For companies where this is too large relative to equity, the impact when impairment occurs will be significant. If goodwill exceeds equity, look at it with extra caution.

The third checkpoint is: how many times EBITA is the interest-bearing debt?

Generally, it is said that when interest-bearing debt exceeds three times EBITDA, financial flexibility becomes limited. In a phase where interest rates are rising, companies with higher multiples will be the first to face difficulties.

The fourth checkpoint is: are operating cash flow and EBITA at similar levels?

A company with impressive EBITA but low operating cash flow may have money tied up in accounts receivable or inventory, or there may be a problem with the quality of the profit itself. In a healthy company, these two figures generally move in the same direction.

The fifth checkpoint is: what is included in the adjustment items?

If you see the term "Adjusted EBITA," be sure to read the notes. Are expenses that occur every year being excluded as "temporary"? Is that adjustment being made using the same criteria the following year? This is where a company's disclosure attitude is revealed.

If you develop the habit of checking these five points, you will not be swayed by the EBITA metric, but will be able to use it as a tool.

14. Frequently Asked Questions

Finally, I will summarize and answer some common questions I receive.

First question: Should I use EBITA or EBITDA?

The basic rule is to match the metric used by the party you are comparing against. Since EBITDA is overwhelmingly more common in public documents and databases, it is more practical if you want to compare with other companies. On the other hand, if you are comparing companies with different capital intensity, EBITA, which still subtracts depreciation, is fairer. If you are unsure, there is no harm in calculating both. Lining up operating profit, EBITA, and EBITDA allows you to see in three dimensions where a company's profits are being eroded.

Second question: Is EBITA an official term under Japanese accounting standards?

It is not. Neither Japanese GAAP nor IFRS has an official definition for EBITA or EBITDA. They are practical terms used for convenience by companies and investors. Therefore, you must be aware that the calculation method can vary from company to company.

Third question: Is there any point in calculating EBITA for companies that adopt IFRS?

The significance is diminished regarding goodwill. Since IFRS companies do not amortize goodwill, there is nothing to add back. However, intangible assets such as trademarks and customer relationship assets recognized during acquisitions are still amortized under IFRS. If a company has significant amortization expenses for these, calculating EBITA by adding them back is meaningful.

Fourth question: Should I avoid investing in companies that have goodwill amortization?

Not necessarily. The mere presence of goodwill only indicates that the company has expanded its business through acquisitions. The issue is whether those acquisitions are successful. If the sales and profits of the acquired business are growing as planned, goodwill amortization can be seen as simply front-loading the recognition of future profits as expenses. What you should look at is not the presence of goodwill, but the post-acquisition performance.

Fifth question: Is EBITA useful for small and medium-sized business owners?

It is directly useful when considering business succession or M&A. Whether you are selling your own company or buying another, the price benchmark is often discussed in terms of a multiple of EBITDA. For small and medium-sized enterprises, a multiple of 3 to 5 times is generally considered standard. By understanding your own EBITDA or EBITA, you can verify for yourself whether a proposed price is reasonable. Also, when financial institutions assess repayment capacity during loan reviews, they typically focus on profit before amortization.

Sixth question: Are companies that emphasize EBITA in their earnings presentation materials hiding unfavorable figures?

You cannot say that definitively. It is reasonable for companies growing through M&A to highlight EBITA to convey the true strength of their business. The key to judgment is whether they show only EBITA or if they also properly include operating profit and net income. Companies that present both, and provide information on goodwill balances and amortization periods, can be evaluated as having a sincere disclosure stance. Conversely, be cautious of companies where adjustment items increase year after year.

Seventh question: How do you pronounce it?

EBITA is generally pronounced "ee-bee-ta." EBITDA is pronounced "ee-bit-dee-ay" or "ee-bit-dah," and EBIT is pronounced "ee-bit." If you are unsure how to pronounce it in a meeting, it is perfectly acceptable to just read the letters one by one.

15. Summary: EBITA is not a panacea, but one of many lenses

Since this has been a long explanation, let's summarize the main points.

EBITA is profit before interest, taxes, and goodwill amortization. In practice, it is calculated as "operating profit + goodwill amortization expenses."

Goodwill is the difference between the purchase price and the net assets when a company is bought—in other words, value that cannot be given a price tag. Under Japanese GAAP, this is amortized within 20 years, so the operating profit of a company that has engaged in M&A will inevitably be reduced.

By removing this accounting allocation, EBITA puts companies that have engaged in M&A on the same playing field as those that have not, and companies using Japanese GAAP on the same level as those using IFRS.

The difference from EBITDA is whether or not depreciation (D) of tangible fixed assets remains deducted. Since EBITA honestly reflects the burden of equipment, it can be said to be a profit figure closer to the actual situation.

Then, on July 27, 2026, Japan decided not to introduce the non-amortization of goodwill. At the same time, a new theme has emerged regarding the review of how information on operating profit before goodwill amortization—that is, EBITA—is provided. Since Japanese financial statements will continue to amortize goodwill for the time being, the value of understanding EBITA for those interpreting them will only increase from here on out.

However, EBITA is not cash itself, and it does not reflect the weight of debt, overpaid M&A, or the risk of impairment. Always view it in conjunction with operating profit, operating cash flow, goodwill balance, and interest-bearing debt.

Accounting indicators are glasses for viewing the world. You cannot see everything with just one pair of glasses. With the glasses of operating profit, the true strength of a company growing through M&A looks small. If you switch to the glasses of EBITA, that strength becomes visible. But then, you might lose sight of poor acquisition pricing. That is why you should switch between several pairs and look at the same company multiple times. I believe that is what it means to read financial statements.

I hope this article helps you add one more pair to your glasses case.

References and Sources

Financial Accounting Standards Foundation (FASF), "Status of Response to Theme Proposals Regarding Accounting Treatment of Goodwill"
https://www.fasf-j.jp/jp/news_release/401879.html

Financial Accounting Standards Foundation (FASF), "Information Request: April 2026 Introduction of Non-Amortization of Goodwill and Changes in Classification of Goodwill Amortization Expenses"
https://www.fasf-j.jp/jp/wp-content/uploads/sites/2/noren_20260401.pdf

EY Japan, "Discussions on Non-Amortization of Goodwill and Impact on Companies" (Info Sensor, December 2025 Issue)
https://www.ey.com/ja_jp/technical/library/info-sensor/2025/info-sensor-2025-12-05

EY Japan, "Key Points of Information Request Regarding 'Introduction of Non-Amortization of Goodwill and Changes in Classification of Goodwill Amortization Expenses'" (April 30, 2026)
https://www.ey.com/ja_jp/technical/corporate-accounting/accounting-topics/2026/accounting-topics-2026-04-30

Grant Thornton Japan, "Continued: Discussions on Non-Amortization of Goodwill" (August 2026)
https://www.grantthornton.jp/insight/newsletter/ceo-mr/202608/

The Japanese Institute of Certified Public Accountants (JICPA), "Opinion on Information Request Regarding 'Introduction of Non-Amortization of Goodwill and Changes in Classification of Goodwill Amortization Expenses'" (June 4, 2026)
https://jicpa.or.jp/specialized_field/20260604dea.html

PwC Japan Group, "Goodwill Amortization and Impairment Practice"
https://www.pwc.com/jp/ja/knowledge/column/goodwill-amortization-and-impairment.html

Nikkei, "M&A 'Goodwill' Amortization Maintained: Accounting Standards Board Reduces Financial Risk"
https://www.nikkei.com/article/DGXZQOTG1791D0X10C26A7000000/

Nikkei, "Goodwill Amortization Review Discussion Deviates from Starting Point: Accounting Standards Are Not Policy Tools"
https://www.nikkei.com/article/DGXZQOUB069W10W6A700C2000000/

Nikkei, "IFRS Ends Goodwill Amortization Discussion: Japan Forced to Respond"
https://www.nikkei.com/article/DGXZQOUC147EW0U2A111C2000000/

Japan Private Equity Association, "The Current State of 'Periodic Goodwill Amortization' under J-GAAP and the Voices of M&A Players" (March 28, 2025, Materials Submitted to the Council for Promotion of Regulatory Reform)
https://www8.cao.go.jp/kisei-kaikaku/kisei/meeting/wg/2501_04startup/250328/startup04_0102.pdf

EDINET DB, "EV/EBITDA (Enterprise Value Multiple) Formula, All-Company Distribution, Industry Medians, and Rankings"
https://edinetdb.jp/metrics/ev-ebitda

GENDA Inc., "Why We Use EBITDA as a KPI Instead of Operating Profit as Goodwill Amortization Expenses Increase for an M&A Company"
https://genda.jp/ufaq/ma企業としてのれん償却費が増加する中営業利益/

GENDA Inc. 'If performance is evaluated using "Operating Profit Before Amortization (EBITDA)" and "Net Income Before Amortization of Goodwill," which do not consider goodwill amortization expenses, does it mean that acquisition valuations will become higher and it will not matter how much goodwill is generated?'
https://genda.jp/ufaq/のれん償却費を考慮しない償却前営業利益ebitda/

Money Forward, Inc. 'What is EBITDA? An easy-to-understand explanation of the differences from operating profit and EBIT, as well as how to view and calculate it.'
https://biz.moneyforward.com/accounting/basic/45285/

Abitus 'Differences between IFRS and Japanese GAAP regarding the amortization of goodwill'
https://www.abitus.co.jp/column_voice/ifrs/column_voice9.html

TKC Group 'Future trends and issues in goodwill accounting (Part 3, Final)'
https://www.tkc.jp/consolidate/webcolumn/column202510_2_col03/

Note that "Sample Trading Co." in this text is a fictional company used for explanation and has no relation to any real-world company. All figures have been created for illustrative purposes.