is an acronym for: Earnings Before Interest Taxes Depreciation Amortization.
Based on data taken from the income statement of a business, EBITDA is one of many indicators of financial performance. It is calculated by measuring earnings before the deduction of interest expenses, taxes, depreciation and amortization.
Especially for the purpose of business transfer, the EBITDA calculation is of interest to business owners, bankers and business buyers since EBITDA is the major component of the cash flow that a business has to service any proposed debt.
However, EBITDA by itself IS NOT a true indication of cash flow. Whether attempting to measure historical or projected cash flow, other factors will increase or decrease cash available.
If you would like to discuss the implications of the EBITDA measurement in the business transfer process feel free to contact Yarmouth Venture Group.
NORMALIZED CASH FLOW
Click here to download a document which explains how cash flow SHOULD be calculated by both business buyers and business sellers.
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