EBITDA

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. By excluding interest (a financing decision), taxes (a jurisdiction-specific factor), depreciation, and amortization (non-cash accounting charges), EBITDA attempts to show the raw operating profitability of a business — making it easier to compare companies across different tax environments and capital structures.

EBITDA is widely used in buyout and M&A analysis because it approximates how much cash a business generates before debt service. Acquisition prices are often quoted as a multiple of EBITDA (e.g., 10x EBITDA). However, EBITDA can be misleading for capital-intensive businesses where depreciation actually reflects real asset wear and must be replaced.

Example: A manufacturing company with $500M revenue, $200M operating expenses, $50M interest expense, $30M in taxes, and $40M in D&A might show a net income of $180M but an EBITDA of $300M. The gap helps explain why PE firms can afford to leverage the business.

The EV/EBITDA multiple is a key valuation metric analyzed in BMInsider's 100X Insider Reports to compare companies across industries.