Who this is for — Comparing operating profitability across firms with different tax and capex structures. EBITDA is popular in M&A — read with caution.
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is profit before interest, taxes and depreciation/amortization — a proxy for operating cash generation, not actual cash.
In plain terms — «How much the core business earns before debt, tax and investment accounting» — useful for EV/EBITDA multiples.
Use and multiples
| Metric | Formula | Context |
|---|---|---|
| EBITDA margin | EBITDA / revenue | Peer comparison |
| EV/EBITDA | Enterprise value / EBITDA | Deals, capital-intensive sectors |
| Adjusted EBITDA | Excludes one-offs | Pitch decks — verify exclusions |
Excludes capex, working capital, stock-based comp — for software and growth watch FCF.
Limits
- Ignores mandatory investment (maintenance capex)
- «Adjusted» can hide recurring costs
- Low-capex vs heavy industry: same margin, different FCF
- Bridge to DCF: EBITDA → FCF with capex and ΔWC
Common mistake — Valuing on EV/EBITDA alone without leverage and reinvestment — low multiple with high debt can be a trap.
Example — Firm A EBITDA €50M, capex €30M → weak operating FCF; Firm B EBITDA €40M, capex €5M → better earnings quality.
Card
- Multiple: EV/EBITDA vs sector.
- Check: capex, debt, FCF.
- Source: financial statements and cash flow statement.