Servicing Debt: Why EBITDA Tells a Different Story Than Profit

When Delta Airlines reported significant depreciation expenses due to its massive fleet investments, headlines focused on reduced profits. Yet behind the scenes, the airline continued to generate strong operating cash flow—raising an important question for entrepreneurs and investors alike: is profit the best indicator of a business’s ability to repay its debt?

While net profit is a key financial metric, it can obscure a business’s actual debt-servicing capacity. That’s where EBITDA—Earnings Before Interest, Taxes, Depreciation, and Amortization—comes in. It strips out non-cash and non-operational charges to highlight the core earnings power of the business. For companies like Delta, operating in asset-heavy industries, this distinction is critical.

Let’s break it down. Net income accounts for depreciation, taxes, interest, and amortization. These are important for understanding overall profitability, but they don’t always reflect a company’s day-to-day cash-generating ability. For example, depreciation lowers net profit but doesn’t reduce cash. Taxes and interest vary depending on capital structure and geography.

In contrast, EBITDA focuses on operational performance—how well the business generates earnings from its core activities, regardless of how it’s financed or how its assets are structured. This makes it a more consistent and comparable metric for lenders and investors evaluating whether a business can handle its debt obligations.

One of the most widely used applications of EBITDA is in calculating the interest coverage ratio—a key measure of debt-servicing capacity. A higher ratio signals stronger ability to meet interest payments, often translating into better borrowing terms. If lenders relied solely on net profit, companies with large non-cash charges or aggressive depreciation schedules would appear riskier than they actually are.

To make effective use of EBITDA in your own business:

Understand it as a planning tool. Before taking on new debt, evaluate how much of your EBITDA is already committed to interest payments and fixed costs. Use it to assess how future investments might impact your ability to service existing obligations. And communicate in the language of lenders—highlighting EBITDA in funding discussions can improve credibility and help negotiate better terms.

Of course, EBITDA isn’t perfect. It doesn’t account for capital expenditures or changes in working capital—both of which impact true cash flow. But when combined with other indicators, it offers a valuable lens through which to evaluate financial strength.

Whether you’re expanding into new markets or refinancing existing loans, understanding the difference between profit and EBITDA isn’t just financial literacy—it’s strategic foresight. It gives you a clearer sense of what your business can handle today, and what it’s capable of tomorrow.