I just noticed that many people still don't really understand what EBITDA is and how to use it in stock analysis. Importantly, Warren Buffett, even though he doesn't favor this number, most investors still rely on it as a key tool in company valuation.

First, EBITDA stands for Earnings Before Interest, Tax, Depreciation, and Amortization, or profit before deducting interest, taxes, depreciation, and amortization. Simply put, it's the cash profit from operations. Companies like Tesla, SEA Group, and startups in the growth stage often use EBITDA figures to demonstrate profitability.

Why is EBITDA important to investors? Because it allows us to compare the profitability of companies within the same industry effectively, without worrying about different tax policies, debt management, or accounting methods. If Company A has a higher EBITDA than Company B, it indicates better operational profit-making ability.

However, be cautious because EBITDA can sometimes look better than reality, as it doesn't account for many expenses. A company might have a positive EBITDA but still be losing money overall. Therefore, it should be considered alongside other figures.

The calculation method isn't complicated: EBITDA = Profit Before Tax + Interest + Depreciation + Amortization. For example, if Thai President Foods has a profit before tax of 5,997,820,107 baht, plus interest of 2,831,397 baht, plus depreciation of 1,207,201,652 baht, and amortization of 8,860,374 baht, the EBITDA would be approximately 7,216,713,530 baht.

Most companies don't directly show EBITDA in their financial statements, but you can calculate it yourself from available data. Some companies, like Minor International, include it in their annual reports.

Using EBITDA is most effective for assessing how well a company can service its debt—higher is better. But it should only be used over 1-2 years, not long-term, because actual depreciation costs tend to increase over time.

Another important figure is EBITDA Margin, which is the ratio of EBITDA to total revenue. If EBITDA Margin exceeds 10%, it's considered good. The higher, the less risky the company appears.

Many people confuse EBITDA with Operating Income, but they are different. EBITDA doesn't deduct depreciation and amortization, while Operating Income does. Therefore, Operating Income reflects a more accurate picture of profitability.

Be cautious because EBITDA is a manipulated figure; companies might use it to create a more favorable image. Also, EBITDA doesn't reflect a company's liquidity, debt obligations, or other increasing expenses. Even if EBITDA looks high, the company might still face financial problems.

In summary, EBITDA is a useful tool, but it shouldn't be used alone. It should be considered alongside other figures like Net Income, Operating Income, Cash Flow, and various factors before making investment decisions. Because EBITDA doesn't truly indicate a company's overall strength.