EBITDA

EBITDA
What is EBITDA?
Earnings Before Interest, Taxes, Depreciation
and Amortization
Why is it used?
To evaluate the raw earnings power of a
company
Why is raw earnings power important?
To perform certain types of valuation
 What is Valuation used for?
Mergers, Acquisitions, Comparing
and Leveraged Buyout Companies within or
Analysis across industries

Real-Estate General Securities

Investments Analysis
 How to Get EBITDA
Take Viacom, Inc:
Revenues
5,954.4 (Revenue)
- Costs (COGS, SG&A) - 3,887.6 (COGS)
= EBITDA - 1,109.9 (SG&A)
= 956.9 (million) -
Ignores secondary costs EBITDA
like financing charges, What about ITDA?
taxes, and non-cash costs
397.1 (Depr.&Amort.)
like depreciation and
+ 209.1 (interest exp)
amortization
+ 202.4 (taxes)
= 808.6 (million)
 Common Applications of
EBITDA
Discounted Cash Flow Acquisition, Merger,
Valuations and LBO valuations
A multiple of EBITDA An LBO buyer looks to
can be used to pay back all cash for
calculate terminal the buyout within six
value years, so they try not to
pay over 5x EBITDA
for the company being
bought
 Where to go from here
EBITDA ratios
EBITDA / Interest Expense (a variation of
interest coverage ratio)
EBITDA / Sales
Variations: EBIT, EBITA

Applying Enterprise Value / EBITDA