Finance
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation)
A measure of operating profitability that strips out financing decisions (interest), tax jurisdictions, and non-cash accounting items (depreciation, amortisation), used to compare operating performance across companies.
In plain English
How much money the business makes from running its operations, before financial-engineering and accounting choices distort the picture.
Example
Revenue: $10M. COGS + Operating expenses: $7.5M. Operating income: $2.5M. Add back $300k of depreciation and $200k of amortisation. EBITDA = $3.0M. EBITDA margin = 30%.
Formula
EBITDA = Operating Income + Depreciation + Amortisation Or equivalently: EBITDA = Revenue − COGS − Operating Expenses (excluding D&A)
Why it matters
EBITDA is the standard metric for valuing mature businesses (PE deals often quoted as a multiple of EBITDA). For SaaS startups, investors usually focus on revenue + growth rate rather than EBITDA, but EBITDA matters once growth slows and the business has to demonstrate cash generation.
Common mistakes
- Reporting 'adjusted EBITDA' that backs out so many costs (stock comp, restructuring, founder salary) that the number is meaningless
- Using EBITDA as a proxy for cash flow — it ignores working capital, capex, and tax
- Comparing EBITDA across industries (capital-intensive vs SaaS) without context
- For early SaaS: getting fixated on EBITDA when investors are pricing on ARR growth