Business finance glossary
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization — the standard proxy for a business's operating cash flow.
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a measure of operating profitability that strips out financing decisions, tax effects, and non-cash accounting charges. It is calculated as: Net Income + Interest + Taxes + Depreciation + Amortization, or alternatively as Operating Income + Depreciation + Amortization. EBITDA is the most common metric in business valuations — businesses are often valued at a multiple of EBITDA (typically 3–8× for small businesses, higher for scalable software or recurring revenue businesses). Lenders use EBITDA to assess debt service capacity. For a business sale, a higher EBITDA margin and lower owner-dependence typically produce a higher EBITDA multiple.