EBITDA stands for earnings before interest, tax, depreciation and amortisation. Put simply, EBITDA is a measure of profit.
It is used for valuing a company and gives a good indication of the underlying financial health and profitability of a company being bought or sold. This is because it discounts the impact on profit of tax legislation, as well as financial and accounting deductions such as interest on debt.
In private equity, company valuations are based upon multiples of EBITDA. For example, in the lower-mid market, which we specialise in, companies are typically valued in the range of 5-8x EBITDA.