Where’s the best place to find depreciation and amortization for calculating EBITDA?
A) Income Statement
B) Balance Sheet
C) Cash Flow Statement
A) Income Statement:
Close, but not quite! Let’s make sure you understand…
The income statement isn’t the best place because while sometimes you can find depreciation and amortization broken out as separate line items, for a lot of companies depreciation and amortization are buried in the cost of goods sold and selling general and administrative costs line items. Also, even when they are separately broken out, it isn’t uncommon for small amounts of depreciation and amortization to be buried in the other operating expenses line item.
B) Balance Sheet:
Not quite! Let’s make sure you understand…
The balance sheet isn’t the best place because it represents the accumulated depreciation and amortization for the assets, not the amount recognized over the reporting period matching EBITDA.
C) Cash Flow Statement:
Correct! But do you know exactly why? Let’s take it up another level….
The best place is the cash flow statement because it clearly breaks out depreciation and amortization as a separate line item and captures all of the depreciation and amortization recognized over the reporting period that matches EBITDA.
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