---
title: "What Is EBITDA?"
term: "EBITDA"
description: "EBITDA (earnings before interest, taxes, depreciation, and amortization) is a proxy for operating cash generation—widely used in PE and late-stage valuation."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/ebitda
---

# What Is EBITDA?

> EBITDA (earnings before interest, taxes, depreciation, and amortization) is a proxy for operating cash generation—widely used in PE and late-stage valuation.

**EBITDA** (earnings before interest, taxes, depreciation, and amortization) is a standardized earnings measure that strips out financing, tax, and non-cash accounting charges.

## How it works

Take net income (or start from EBIT), add back interest, taxes, depreciation, and amortization. The result approximates recurring operating performance before capital structure and accounting allocation choices.

A company with $10M EBIT plus $2M depreciation reports $12M EBITDA. PE buyers might pay 8× EBITDA ($96M enterprise value)—simplified example; real multiples vary by sector and growth.

**Adjusted EBITDA** adds back one-time costs—restructuring, litigation, owner perks—to show "run-rate" performance. Buyers and sellers negotiate adjustments aggressively; every add-back is a debate.

Venture startups rarely discuss EBITDA until late stage. SaaS companies may reach "EBITDA breakeven" while still prioritizing growth reinvestment.

## Why it matters

- **Founders:** When you pitch profitability, define the metric. EBITDA-positive with heavy stock comp and capex differs from free cash flow positive.
- **Investors:** Growth equity and PE underwrite on EBITDA margins and expansion. Lenders set maintenance covenants on trailing twelve-month EBITDA.
- **Acquirers:** [Enterprise Value to EBITDA](/glossary/enterprise-value-to-ebitda) multiples benchmark deal pricing.

## Common mistake

Treating EBITDA as actual cash available to owners. EBITDA ignores capex, working capital, stock-based compensation, and debt service—critical for leveraged companies.

## Related ideas

- [EBIT](/glossary/ebit) — before D&A add-back
- [EBITDA Margin](/glossary/ebitda-margin) — EBITDA as percent of revenue
- [Enterprise Value](/glossary/enterprise-value) — numerator in EV/EBITDA
- [Dividend Recapitalization](/glossary/dividend-recapitalization) — debt sized on EBITDA

## FAQ

### What is EBITDA in simple terms?

Operating profit with depreciation and amortization added back—roughly 'cash-ish' earnings before debt payments and taxes. PE firms love it for comparing leveraged buyouts.

### Why does EBITDA matter?

Many acquisitions price as a multiple of EBITDA. Lenders size debt on EBITDA covenants. Founders claiming profitability should specify whether they mean EBITDA, operating income, or net income.


---
Source: https://venturecapitaltracker.com/glossary/ebitda