EBITDA excludes which items according to common practice?

• A. Investment in long-term assets, Depreciation, Interest, and Non-Recurring Charges
• B. Taxes and Working Capital adjustments
• C. Stock-based compensation only
• D. Dividends and equity financing costs

Answer: (A)

EBITDA is earnings before interest, taxes, depreciation, and amortization. It is meant to measure ongoing operating performance by stripping out financing effects (interest), government charges (taxes), and non-cash accounting charges (depreciation and amortization). In common practice, additional items often set aside to show operating profitability more clearly include non-recurring charges, and many analysts also view capital expenditures (investment in long-term assets) as outside the earnings measure because they are cash investments in long-lived assets rather than part of the period’s earnings. That combination—investment in long-term assets, depreciation, interest, and non-recurring charges—is why this option is considered the best answer. The other choices involve items that aren’t typically treated this way within EBITDA: taxes are excluded, but working capital adjustments aren’t a standard EBITDA adjustment; stock-based compensation is not the sole or primary exclusion; and dividends or equity financing costs are not part of the EBITDA framework.