Article Review: What is EBITDA, and Why Do Investors Care About It? | Axial

Karen Sibayan | January 13, 2017

Key Takeaways:

For the novice only.  Very basic article explaining what EBITDA is and how to calculate it.

• EBITDA stands for earnings before interest, taxes, depreciation, and amortization. EBITDA indicates whether a business is profitable by revealing the amount of its normal operational earnings.
• EBITDA is used by traders, analysts, portfolio managers and others as an indicator of whether companies are properly valued.  In the sale of a business a buyer will pay a multiple of EBITDA for a business.
• EBITDA is used by lenders to see if companies will be able to pay their future debt obligations. 
• EBITDA does not necessarily provide a complete picture of a business’ true value or performance.
• EBITDA is not cash flow, but serves as a proxy for pre-tax operational cash flow.  Because a company’s depreciation, amortization, debt, and tax profile will change as a result of a deal, EBITDA removes those components from the picture. EBITDA is a more standardized way for buyers to compare companies within their respective sectors.

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For additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at Eric@EdisonAvenue.com or 239.738.6227. Also, visit our Edison Avenue website at www.EdisonAvenue.com. To search for Florida Businesses for Sale: CLICK HERE