EBITDA stands for Earnings Before Interest, Tax, Depreciation & Amortization and is one of the most commonly used indicators of the profitability of a firm.
The EBITDA calculation is Operating Income + Depreciation + Amoritzation + Stock-Based Compensation.
EBITDA is a popular metric used for comparing companies, particularly with an LBO. The most common multiple using EBITDA is:
- Enterprise Value / EBITDA
The reason behind using EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) is because it allows you to see both the profitability of a firm excluding taxes and also because it shows the ability of the firm to service debt (hence its popularity in debt-financed buyouts) and that it is not affected by capital structure (i.e. debt payments).
Related Terms
- Amortization
- Capital Structure
- Comparable Analysis
- Debt
- Depreciation
- Equity Value
- Enterprise Value (EV)
- EV / EBITDA
- Interest Rate (IR)
- Leveraged Buyout (LBO)
- Precedent Transactions
- Public Comparable Companies
- Revenue
- Taxation
- Trading Multiple
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