What is it? In relation to revenue?
What is an ebitda multiple and what does it mean?
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EBITDA = Earnings before interest, taxes, depreciation and amortization. Basically, it’s an easy way to remove some financing/accounting decisions from the actual operations of the business. This made a lot of sense when you had industrial businesses that had huge prior year investments in property/plant/equipment that create noise in financial results, because you “pay” for them over multiple years.
An EBITDA multiple is the company’s EBITDA divided by the company’s enterprise value — essentially how much is it earning relative to how much it’s worth. Which allows you to compare similar companies to see if a company is over/under valued compared to the amount of earnings it generates. It’s a useful proxy — for example, if similar companies have a multiple of 10 and your multiple is 5, your company is either a) underperforming relative to peers or b) undervalued relative to peers.
EBITDA stands for Earnings before Interest Taxes, Depreciation and Amortization.
It’s used as a rough measure of how much cash a business generates and without preferencing businesses that have financing that is off the income statement. Debt financing vs equity financing have very different income statement and tax treatments but a buyer can generally expect to have some flexibility to choose between the two. So, EBITDA tends to be the income figure that acquirers focus on (because that’s a good measure of how much cash they could have available for other purposes and they can choose the capital structure of the acquisition.
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