What is EBITDA?
EBITDA is earnings before interest, taxes, depreciation and amortization: a common stand-in for the cash profit a business generates from operations. It is a non-GAAP measure. SEC staff guidance says earnings here means GAAP net income, and that measures calculated differently should carry a different name, such as adjusted EBITDA.
Why it matters to a revenue leader
In private equity, EBITDA is the number a company is bought and sold on, usually as a multiple. Every dollar of recurring EBITDA a revenue leader adds is worth that multiple at exit, which is why sponsors care about margin as well as growth. EBITDA is also the base for loan covenants in many companies that carry acquisition debt. A commercial plan that grows revenue without lifting EBITDA will get a cool reception from the board.
How to calculate it
EBITDA = net income + interest + taxes + depreciation + amortization, or operating income + depreciation + amortization. A common mistake is treating EBITDA as cash: it ignores capital spending and changes in working capital, and both consume cash.
Example
Fictitious numbersA PE-backed fire and life safety platform reports $5 million of operating income and $1.5 million of depreciation and amortization, so EBITDA is $6.5 million. At a 10x multiple, each additional $100,000 of recurring EBITDA adds about $1 million of enterprise value.
"How much EBITDA did our commercial plan add this year, and how much of it will recur?"
Sources
- What Is EBITDA? Definition, Formula and Examples (Corporate Finance Institute) checked 9 Oct 2026
- Non-GAAP Financial Measures, staff interpretations (SEC) checked 9 Oct 2026