Full Definition
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a financial metric that measures a company's operating profitability by removing the effects of financing decisions, tax environments, and accounting methods. It's widely used to compare profitability across companies and industries.
Formula: EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
EBITDA in Startups
- Most early-stage startups have negative EBITDA (they're spending more than earning)
- EBITDA becomes relevant for later-stage companies and PE-backed companies
- EBITDA margins are key for companies targeting profitability
- Enterprise value / EBITDA multiples are used for mature company valuations
Adjusted EBITDA
Companies often report "adjusted EBITDA" which removes one-time or non-recurring expenses (restructuring costs, stock-based compensation, etc.) to show a cleaner picture of ongoing profitability.
Real-World Example
A late-stage SaaS company with $50M revenue reports $10M EBITDA (20% margin), valued at $150M (15x EBITDA) in a potential acquisition.
Related Terms
The total income generated by a company from its business activities before any expenses are deducted.
The net movement of cash in and out of a business over a specific period.
The ongoing costs of running a business, including salaries, rent, marketing, and administrative costs.
The estimated monetary worth of a company, determined through various methods and negotiations.
Investment firms that acquire stakes in or buy out mature companies to improve operations and resell at a profit.
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