EBITDA is earnings before interest, taxes, depreciation and amortization. Buyouts are often priced as a multiple of it, so how it is adjusted matters. It is not a cash figure and is not part of GAAP.
What the film says
In private equity, six letters can set the price of a company. They spell EBITDA. Earnings before interest, taxes, depreciation and amortization. It tries to show the business on its own, before the debt, the taxes, and the wear on its assets. Say it's fifty million. A buyer pays ten times that. Five hundred million. So one more dollar of it can add ten dollars to the price. That's why it gets adjusted. One-off costs get added back. Expected savings get added back. So why do investors care? It isn't cash. It skips the spending that keeps the machines running. And it isn't a standard number. Small number. Big price tag.
In the glossary: EBITDA
A simple example with round numbers, not advice. Terms vary by fund.
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