EBITDA

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is used to determine the operational cash flow and serves as a key comparable metric for different countries and companies.

To calculate EBITDA, a company takes its revenues and subtracts the cost of goods sold and selling, general, and administrative expenses (SG&A).

EBITDA = Net Income + Taxes + Interest + Depreciation & Amortization

An important aspect is normalized EBITDA. As mentioned, the purpose of EBITDA is to provide a comparable estimate of a company’s cash flow. However, throughout a fiscal year, there can be write-offs, restructurings, and other one-time costs. These one-time costs should be excluded to make EBITDA comparable. These adjustments can include the following:

• Other income
• Write-offs/Impairments
• Restructurings
• Capital expenditures
• Other non-recurring expenses

EBITDA is one of the fundamental metrics used in the M&A industry. In most situations, EBITDA determines the value of your company based on comparable industry multiples. The most commonly used multiple today is EV/EBITDA.