EBITDA
Earnings Before Interest, Taxes, Depreciation and Amortisation — a measure of operational profitability independent of capital structure and accounting policy choices, used as the basis for M&A valuation multiples in SME transactions.
In practice
An EBITDA of 1 million euros in a sector trading at 6x implies an indicative enterprise value of 6 million euros before adjustments. Its main shortcoming: it masks capital expenditure requirements. A company with 2 million euros EBITDA but 1.5 million in mandatory annual capex generates only 500,000 euros in true free cash. Adjusted EBITDA, restating non-recurring items, is preferred in sale processes.