EBITDA, explained with a kirana shop, and what it leaves out

EBITDA is usually the biggest profit number in the presentation. That’s partly because it leaves out some of the biggest costs.

The shop

Say you run a kirana shop. In a year:

So EBITDA stands for Earnings Before Interest, Tax, Depreciation and Amortisation. It’s a measure of what the shop earns from running day to day, before the costs of how it was financed and equipped.

These are hypothetical numbers, chosen to keep the arithmetic easy.

Why people use it

EBITDA is genuinely useful for comparison. Two shops may have the same daily trade while one has a loan and the other doesn’t. Ignoring interest and tax lets you compare the operations themselves. That’s why it appears in nearly every offer document, usually with its margin (EBITDA as a percentage of revenue).

Jio’s version

Here’s the same ladder using real numbers, from the summary statements on page 76 of the Prospectus.

Out of every ₹100 of EBITDA, about ₹36 went to depreciation and ₹11 to interest, and ₹39 was left as profit. That’s my arithmetic. It’s a useful way to see how far the headline figure is from the bottom line.

What EBITDA leaves out

1. The equipment wears out

For a light business, this hardly matters. For telecom, it’s huge. Towers, fibre and spectrum are the business. Jio’s cash spending on these was ₹34,255 crore in FY26, and ₹53,607 crore two years earlier. EBITDA doesn’t show any of that.

2. Debt has to be serviced

A company can show a fine EBITDA and be struggling with its loans. Interest comes after this line. So always look at debt together with it, and read how the debt is defined. Jio’s spectrum dues, for example, sit outside its “net leverage” measure.

3. Definitions vary

EBITDA isn’t a strictly standardised number. Jio’s starts from profit before tax, so it includes other income such as treasury returns. Leave out that ₹2,874 crore, and by my calculation the FY26 margin is about 50% rather than the reported 51.91%. That’s no scandal; it’s disclosed. But if you compare two companies, check they measure the same thing. Page 137 of the document explains Jio’s definition.

4. It isn’t cash

A sale on credit counts in EBITDA before the customer has paid. Stock sitting on shelves ties up money without appearing here. So compare EBITDA with cash flow from operations. In Jio’s case, this comparison is reassuring: ₹77,556 crore of operating cash flow in FY26 against ₹76,255 crore of EBITDA. A prepaid business collects money up front, and that helps. In another company, a persistent gap here is a good reason to investigate.

Three quick checks

1. EBITDA minus capex. What’s left after the business keeps its equipment running? For Jio, this rose from ₹1,449 crore in FY24 to ₹42,071 crore in FY26, as the heavy 5G spending slowed. Ask whether it stays low.
2. Debt ÷ EBITDA. How many years of EBITDA would it take to repay net debt?
3. Margin trend. A rising margin is good, but find out why. Is it pricing, cost cuts, or a change in accounting?

For a stricter version of the cash calculation, using all of Jio’s big bills, see Stop 5 of the full guide.

Accounting basicsJio

Maksud Ahmad Khan

Finance fresher and NISM Series XV Research Analyst, on the PGPM at ICFAI Business School, Mumbai. I write about IPOs, filings and Indian markets. Say hello.