EBITDA

EBITDA
What is EBITDA?
Earnings Before Interest, Taxes, Depreciation
and Amortization
Why is it used?
To evaluate the raw earnings power of a
company
Why is raw earnings power important?
To perform certain types of valuation
What is Valuation used for?
Mergers, Acquisitions,
and Leveraged Buyout
Analysis

Real-Estate
Investments
Comparing
Companies within or
across industries

General Securities
Analysis

How to Get EBITDA
Revenues
- Costs (COGS, SG&A)
= EBITDA

Ignores secondary costs
like financing charges,
taxes, and non-cash costs
like depreciation and
amortization





Take Viacom, Inc:
5,954.4 (Revenue)
- 3,887.6 (COGS)
- 1,109.9 (SG&A)
= 956.9 (million) -
EBITDA
What about ITDA?
397.1 (Depr.&Amort.)
+ 209.1 (interest exp)
+ 202.4 (taxes)
= 808.6 (million)
Common Applications of
EBITDA
Discounted Cash Flow
Valuations
A multiple of EBITDA
can be used to
calculate terminal
value



Acquisition, Merger,
and LBO valuations
An LBO buyer looks to
pay back all cash for
the buyout within six
years, so they try not to
pay over 5x EBITDA
for the company being
bought
Where to go from here
EBITDA ratios
EBITDA / Interest Expense (a variation of
interest coverage ratio)
EBITDA / Sales
Variations: EBIT, EBITA

Applying Enterprise Value / EBITDA