EBITDA stands for earnings before interest, tax, depreciation and amortisation. It is a measure of a company's operating profitability that strips out financing costs, tax and non-cash accounting charges, making it easier to compare businesses and widely used by buyers, lenders and private equity investors to value companies.
What it means
EBITDA starts with operating profit and adds back depreciation and amortisation. Because it ignores how a business is financed and taxed, it gives a rough view of the cash-generating power of the core operations.
It is not a statutory measure, so definitions vary. Adjusted EBITDA goes further and removes one-off items such as restructuring costs or owner salaries above market rate.
How it is used in a UK business
Buyers often value private companies as a multiple of EBITDA, and banks set loan covenants such as net debt to EBITDA. In a sale, the quality of earnings work in due diligence focuses heavily on which adjustments to EBITDA are justified.
EBITDA has limits. It ignores capital expenditure, working capital and debt repayments, so a business can show healthy EBITDA and still run short of cash.
Frequently asked questions
Why do private equity investors focus on EBITDA?
EBITDA gives a comparable view of operating earnings regardless of capital structure, which matters because private equity typically changes how a business is financed after acquisition. Entry and exit valuations are often expressed as a multiple of EBITDA, so growing it is central to the investment case.
What is the difference between EBITDA and adjusted EBITDA?
Adjusted EBITDA removes items management considers non-recurring or not reflective of normal trading, such as one-off legal fees or excess owner pay. Buyers scrutinise every adjustment in due diligence, so each one should be documented and defensible.
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Last updated: 5 November 2026