What is an example of a non-cash expense reflected in EBITDA?

EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, is a financial metric that measures a company's overall financial performance and profitability from its core operations. Depreciation is a non-cash expense that accounts for the gradual reduction in value of tangible fixed assets, such as machinery or buildings, over time due to wear and tear or obsolescence.

In the context of EBITDA, depreciation is important because it allows businesses to reflect the cost of asset utilization without actually incurring a cash outflow during the accounting period. By including depreciation in the calculation of EBITDA, stakeholders can gain a clearer picture of a company’s operating performance.

Other choices involve cash transactions or impacts that do not align with the characteristics of non-cash expenses. Interest paid on loans represents actual cash outflows related to financing activities. Operational salaries, while they are an expense, require cash payments to employees. Cost of Goods Sold (COGS) reflects the direct costs attributable to the production of goods sold, which again represents cash outflow. Thus, depreciation stands out as the only non-cash expense in the EBITDA calculation.