Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)

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What It Means

Earnings Before Interest, Taxes, Depreciation and Amortization, commonly known as “EBITDA”, is a very important measure of a company’s ability to generate cash flow. EBITDA starts with operating profit and adds back the non-cash expenses of depreciation and amortization.

Why It’s Important

EBITDA is a key component of one of the most common Business Valuation methods for Middle Market businesses. It is valued as a measure of company performance because it is neutral to capital structure (relative amounts of debt and equity). This is important to Buyers because a company’s capital structure will likely change with an Acquisition.

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