What is EBITDA?
Earnings Before Interest, Taxes, Depreciation, Amortization...AKA EBITDA
EBITDA is a proxy for free cash flow. It adds back the non-cash expenses (depreciation and amortization) as well as the interest and taxes that are a consequence of management decisions. Not every management team would deploy the same capital structures, so these expenses are added back in the calculation.
A tool to evaluate a company’s performance without factoring in finance, accounting, or tax decisions.
Why it matters to you
This tool is used to help you, the business owner, make accurate comparisons between companies. This also is the most likely way a potential buyer will evaluate the company’s cash flow and use a multiple of EBITDA to place a value on the company.