EBITDA
Short answer
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a proxy for operational cash earnings before financing and tax structure decisions. Lenders, acquirers, and PE firms use it as a primary measure of a business's ongoing earning power.
Formula
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
Start with net income, then add back interest expense, taxes, depreciation, and amortization. The result approximates operating cash earnings.
Why it matters
EBITDA is the standard yardstick lenders and acquirers use to compare businesses regardless of how they're financed, taxed, or how they depreciate assets. SBA lenders, sureties, and most acquirers anchor their math on EBITDA.
Benchmarks
People also ask
Common questions about EBITDA
What is EBITDA?+
EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization. It strips out financing and accounting decisions to show how much operational cash a business generates. It is the most common multiple used in M&A and lending.
How is EBITDA calculated?+
Start with net income, then add back: interest expense, tax expense, depreciation, and amortization. Alternatively, start with operating income and add back depreciation and amortization.
What is a good EBITDA margin?+
EBITDA margin (EBITDA ÷ Revenue) varies widely by industry — software businesses typically post higher margins than distribution or retail. Industry context matters more than the absolute number; benchmark against your sector.
Why is EBITDA important?+
EBITDA isolates operating performance from capital structure (interest) and tax jurisdiction (taxes), so two businesses can be compared apples-to-apples. It also approximates the cash a buyer or lender would have available to service debt.
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