Checkup on EBITDA calculation
Hi all,
Looking to check if my EBITDA calculation is correct, first time for me. It's for a medical professional industry where theres usually 2,2 FTE professionals working with some support staff.
Revenue yearly - 656k COGS - 156k Salaries - 303k Rent and overhead - 125k Depreciation and ammortization - 5k Interest - 1k
Gross profits (500k) - expenses (433k) = earnings before taxes (66k)
EBITDA - 72k
So if a normal price to buy a practise in this field is 3-7x EBITDA the buying price should be 216-504k, right? Looking to learn a bit more about the mathematics behind this, understand this is just one for the many factors deciding value.
Yes, that is correct. EBITDA is often used as a proxy for operating cash flows. It’s a quick way to analyze a company’s ability to earn irrespective of the capital structure. You use the EBITDA multiple to see what range of price is being paid for similar companies in the industry
EBIT is 67 instead of 66 (rounding?)
Rent is tricky one: if you would buy the building, you would only have depreciation and interest --> both below EBITDA. From sell side advisory perspective, you would capatlise the rent (resulting in an asset and corresponding debt item on balance sheet) or you would adjust the 3-7x multiple from peers for this effect in their P&L.
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