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