What is EBITDA and Why is it Relevant to You?

If you’ve heard the term EBITDA thrown around and not truly understood what it means, now is the time to take a closer look, as it can be used to determine the value of your business. That stated, there are some issues that one has to keep in mind while using this revenue calculation. Here is a closer look at the EBITDA and how best to proceed in using it.

EBITDA is an acronym for earnings before interest, taxes, depreciation and amortization. It can be used to compare the financial strength of two different companies. That stated, many people don’t feel that EBITDA should be given the importance that is frequently attributed to it.

Divided Opinion on EBITDA

If there is disagreement on EBITDA being able to determine the value of a business, then why is it used so often? This calculation’s somewhat ubiquitous nature is due, in part, to the fact that EBITDA takes a very complicated subject, determining and comparing the value of businesses, and distills it down to an easy to understand and implement formula. This formula is intended to generate a single number.

EBITDA Ignores Many Key Factors

One of the key concerns when using or considering a EBITDA number is that it is often used as something of a substitute for cash flow, which, of course, can make it dangerous. It is vital to remember that earnings and cash earnings are not necessarily one in the same.

Adding to the potential confusion is the fact that EBITDA does not factor in interest, taxes, depreciation or amortization. In short, a lot of vital information is ignored.

Achieving Optimal Results

In the end, you simply don’t want to place too much importance or emphasis on EBITDA when determining the strength of a business. The calculation overlooks too many factors that could influence future growth and prosperity of a business.

Business brokers have been trained to handle valuations to determine the approximate value of a business. Since valuations take many more factors into consideration, they also tend to be far more accurate.

Copyright: Business Brokerage Press, Inc.

Interstid/BigStock.com

Businesses For Sale

Sell Your Business

Sell Your Business

When selling your business, you need to have an expert Business Broker. Trusting the sale of your business to anyone else could end up permanently damaging the value of your business. Confidentiality is of absolute importance in selling your business. Selling a business without anyone finding out your business is for sale requires a specialized skill; it is one that Jim Tharp Realty has perfected over decades. Since 1969, we have successfully sold over 1,000 businesses and that number grows every day.

Read More

Buy a Business

Buy a Business

Working with Jim Tharp Realty means you will have the elite in Business Brokering at your side, ensuring you the highest chance of successfully acquiring your dream business. We are dedicated to working with you every step of the way. With Jim Tharp Realty, you’ll have a guide to help you navigate the precarious process of buying a business. Regardless of whether you are a seasoned Buyer or this is your first business, we can help.

Read More

Join our email list to learn about our latest opportunities

We Respect your Email Privacy

Afilliations