Glossary · Valuation and finance
EBITDA
Also called adjusted EBITDA
Definition
EBITDA stands for earnings before interest, tax, depreciation and amortisation. It approximates the cash profit a business generates from its operations, and most private company deals are priced as a multiple of it. Sellers usually present an adjusted EBITDA, and financial due diligence tests those adjustments.
Where EBITDA comes up
On this site, in our guides and in the conversations we've written up.
Related terms
Quality of earnings An accountant's report on how much of a company's profit is real, recurring and likely to last. Financial due diligence Diligence on the numbers: earnings, working capital, debt and cash flow behind the headline figures. Earn-out Part of the price that is only paid later if the business hits agreed targets after the sale. Completion accounts Accounts drawn up at closing to adjust the price for the actual cash, debt and working capital on that day. Escrow Money held back from the price by a third party, released later if no claims are made. Leveraged buyout An acquisition paid for largely with borrowed money, secured on the target company itself. Locked box A way of fixing the price on a past balance sheet date, with no adjustment after closing. Net working capital Current assets minus current liabilities: the cash tied up in running the business day to day.