Why is EBITDA often preferred over net earnings when comparing companies?

EBITDA, or Earnings Before Interest, Taxes, Depreciation, and Amortization, is often preferred over net earnings for comparisons between companies primarily because it excludes certain factors that can vary significantly between businesses and industries, such as taxes and interest expenses. This exclusion helps to provide a clearer view of operational performance. When analyzing companies, particularly those in different tax environments or with varying capital structures, EBITDA allows for a more direct comparison of their core business activities without the distortions introduced by differing tax rates and financing strategies.

By focusing on operating performance and omitting the effects of financing structures (interest) and tax situations, EBITDA facilitates a more accurate evaluation of a company's ability to generate profit from its operations. This is particularly crucial when assessing companies in capital-intensive industries or those undergoing significant changes in capital structure.

Comparatively, other options do not accurately capture the specific reasons for EBITDA’s preference: while it is true that EBITDA includes operational expenses, it is not a complete overview of profitability, and it certainly does not focus solely on net income performance. Thus, the design of EBITDA makes it a valuable tool in financial analysis, particularly when the aim is to objectively assess and compare company performance without extraneous influences.