From the cfai book:
“EBIT/Interest expense - because EBIT does not include depreciation and amortization, it is considered a more conservative measure of interest coverage.”
Isn’t the correct wording that it does include depreciation and amortization? That’s why it’s not earnings “Before” depreciation and amortization?
When they say that it doesn’t include them, it means that they’ve been subtracted out (to get EBIT). EBIT is an smaller number than EBITDA, so EBIT/Int < EBITDA/Int: more conservative.
It’s a funny way of saying it, but that’s what they meant.
EBIT = EBITDA - D - A
So it will be less amount than EBITDA
So you can say EBIT is more conservative…
Since it would yield a smaller ratio (when there WAS depr/amor to deduct per Sachin)…