EBITDA

Earnings before interest, taxes, depreciation and amortization. A measure of what a business earns from operating, before financing and accounting choices.

In more detail

EBITDA strips out four things that say more about how a business is owned and financed than about how well it operates: interest (how it borrowed), taxes (its structure and state), and depreciation and amortization (accounting spread of past purchases). What is left approximates the cash the operations throw off. Buyers use it because it lets them compare two businesses that are financed differently.

For example

A business shows $180,000 of net income. Add back $40,000 of interest, $25,000 of taxes, and $55,000 of depreciation, and EBITDA is $300,000.

If you are selling

Most buyers price your business off EBITDA or SDE, not revenue. Two businesses with identical sales can be worth very different amounts.

If you are buying

It normalizes for financing and tax structure, so you can compare targets and model what the business earns under your own capital structure.

Related terms

Wondering what your business is actually worth?

An Estimate of Value is prepared by an analyst, not a calculator, and gives you a number you can plan around.

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