Glossary
Deal economics
What is EBITDA?
Earnings before interest, tax, depreciation and amortisation.
A rough proxy for the cash a business throws off before financing and accounting choices. Every multiple, leverage figure and coverage ratio on the desk is quoted against it, which is exactly why sellers work so hard to flatter it.
A worked example
A business with $100m of revenue and $70m of operating costs (before depreciation and amortisation) has $30m of EBITDA. Take off $8m of depreciation and $5m of interest and pre-tax profit is $17m, but every buyer and lender in the room will still quote the $30m.
Where it catches you in the game
- Deal cards quote EBITDA; leverage and debt quantum are derived from it.
It comes up most on the private equity desk.
Related terms
Learn it by using it
Definitions stick once they've cost you money. Take a seat, make three calls a year and watch what EBITDA does to your returns.