EBITDA stands for ‘earnings before interest, tax, depreciation and amortisation’, and it is a vital component of the Marktlink Multiple calculation. EBITDA is also referred to as gross operating result. It differs from the operating result (EBIT) as stated in the annual accounts. To arrive at EBITDA, depreciations and amortisations must be added to the operating result. Mainly for two reasons, EBITDA is a vital component in the calculation of your company’s value.
Firstly, a higher EBITDA amount in the ‘EBITDA x Multiple’ formula naturally ensures a higher result and therefore a higher enterprise value. However, EBITDA affects the level of the multiple itself as well.
As it happens, higher multiples are generally assigned to larger businesses, due to the fact that smaller businesses are more volatile and therefore involve higher risk. Since EBITDA is a measure of size, companies with higher EBITDA will probably achieve higher multiples, as a result of this ‘size premium’.
But how to arrive at your company’s EBITDA?
To give you an idea of EBITDA and how it is determined, the following simplified calculation was drawn up.
Profit and loss account:
|Nett turnover||€ 1.000|
|-/- cost of goods sold||€ 300|
|= Gross margin||€ 700|
|-/- Depreciations and amortisations||€ 100|
|-/- Various costs||€ 200|
|= Operational result||€ 400|
|-/- Balance interest income and interest expense||€ 50|
|= Nett profit||€ 350|
|-/- Taxes||€ 50|
|= Nett profit after taxes||€ 300|
Converted into EBITDA:
|Nett profit||€ 300,00|
|+ Depreciations and amortisations||€ 100,00|
|= Cash flow||€ 400,00|
|+ Taxes||€ 50,00|
|+ Interest income and interest expense||€ 50,00|
|= EBITDA||€ 500,00|