EBITDA is earnings before interest, taxes, depreciation and amortisation — a company's operating profit with financing costs, tax effects and non-cash accounting charges stripped out. Buyers and lenders use it to compare the underlying earning power of businesses that have different debt loads, tax positions and asset bases.
The formula
EBITDA = Net profit + Interest + Taxes + Depreciation + Amortisation
Worked example, a logistics company:
| Line | Amount |
|---|---|
| Net profit | $180,000 |
| + Interest on truck loans | $35,000 |
| + Income tax | $35,000 |
| + Depreciation (fleet) | $90,000 |
| + Amortisation | $10,000 |
| EBITDA | $350,000 |
Why strip those four? Interest reflects the seller's financing choices, not yours. Taxes depend on structure and jurisdiction. Depreciation and amortisation are accounting allocations of money spent in the past. What's left approximates the cash the operations generate before anyone decides how to fund or shelter them.
Where EBITDA misleads small-business buyers
1. It ignores the owner. In an owner-operated business the owner's unpaid (or under-paid) labour is the biggest "adjustment" of all — which is why Main Street deals are priced on SDE, not EBITDA. BizBuySell's market data — average sale at 2.7× cash flow in Q1 2026 — is SDE-basis for exactly this reason. The full comparison: SDE vs EBITDA.
2. It pretends assets are free. Depreciation is non-cash this year, but trucks, ovens and clinic fit-outs genuinely wear out. In our review of a $1.3M car-hauling listing, fleet replacement capex is the difference between the advertised multiple and the real one. For capital-hungry businesses, check EBITDA minus maintenance capex — or look at free cash flow.
EBITDA in a valuation
Multiply it by an industry multiple to estimate enterprise value, then bridge to what you'd actually pay by subtracting net debt (enterprise vs equity value). The right multiple depends on industry and quality — see valuation multiples by industry for calibrated bands, or let the free calculator pick the band, basis and adjustments for your market automatically. How the engine weighs it all: methodology.
Related: What is EBIT? · What is SDE? · DSCR explained