EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization. A proxy for operating cash flow that strips out financing and accounting differences, making it easier to compare companies across different capital structures. Note: EBITDA is not actual cash flow \u2014 it ignores working capital changes and capex.

Why it matters

The most common profitability metric used in enterprise valuation and M&A. It measures operating profitability independent of capital structure, tax jurisdiction, and non-cash accounting choices. Used as the denominator in EV/EBITDA.

How to read it

EBITDA margin (EBITDA/Revenue) varies widely by industry: software 30-50%, manufacturing 10-20%, retail 5-10%. Declining EBITDA margins with growing revenue suggests pricing pressure or cost inflation. Growing EBITDA margins suggests operating leverage or pricing power.

Lessons that use this term

• EBITDA: What It Is and Isn't
• Costs of Production: Reading a Company's Margin Structure
• Depreciation: Spreading the Cost of Assets
• Projecting Free Cash Flow
• LBO Mechanics: How Financial Sponsors Create Returns
• IRR Math: What PE Firms Actually Target
• What Makes a Good LBO Candidate?
• LBO Sensitivity and Exit Analysis

Related terms

Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta

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