EBITDA

What is EBITDA?

EBITDA, short for Earnings Before Interest, Taxes, Depreciation and Amortisation, is a financial metric used to measure a company’s operating profitability. By excluding financing costs, tax, and non-cash accounting charges, it provides a clearer view of performance from core operations. This makes it easier to compare businesses with different capital structures or tax environments.

Why EBITDA matters in private equity

In Maven’s private equity investments, EBITDA is one of the most important measures when assessing a company. It is central to valuation multiples such as EV/EBITDA, which allow investors to benchmark companies against their peers. It also provides insight into how much debt a business may reasonably support, an important consideration in structuring a deal.

How EBITDA is used

• Valuations: Applied in EV/EBITDA multiples to gauge relative value.
• Performance monitoring: Tracks the impact of operational improvements, particularly in strategies such as buy and build.
• Exit planning: A company demonstrating EBITDA growth will typically command higher valuations when it comes to sale.

Limitations of EBITDA

EBITDA is not a direct measure of cash flow, as it excludes capital expenditure, working capital movements and debt servicing. Investors therefore often use Adjusted EBITDA, which strips out one-off or exceptional items to provide a more accurate picture of sustainable profitability.