What is EBITDA?

EBITDA is a non-GAAP figure, so its calculation varies by deal. Marketing materials and credit agreements typically start from reported numbers and add back items such as one-off costs and projected cost savings, giving “adjusted” or “pro forma” EBITDA. It is often confused with cash flow, though it ignores capital spending and working capital.

Say a company earns $50 million of EBITDA and a firm buys it at 10 times EBITDA. The price is $500 million, before any adjustments.

Buyers and lenders quote their price and debt in multiples of it, so how it is adjusted matters a great deal.

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