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EBITDA
EBITDA is operating profit before interest, tax, depreciation and amortisation. Multiples are applied to it.
Take ordinary profit and put back interest, tax, depreciation of plant and amortisation of intangibles. What remains is what the operating business earns, before financing and tax. Mid-market buyers in DACH use it because it lets firms of different size and gearing be compared. For a serious valuation it is almost always normalised first; see Adjusted EBITDA.
Example
Revenue 8.0 million euros, materials 3.2 million, personnel 2.8 million, other operating expenses 1.2 million. Operating earnings before depreciation = 8.0 − 3.2 − 2.8 − 1.2 = 0.8 million euros of EBITDA. EBITDA margin = 10 percent.
Related terms