Understanding the numbers · Topic guide
EBITDA
Earnings before interest, tax, depreciation and amortization; an operating comparison measure rather than spendable cash.
EBITDA removes certain financing, tax and accounting charges from earnings so buyers can compare operating performance before some ownership-specific choices. It is frequently used as the denominator for valuation and leverage discussions. Its usefulness depends on a consistent definition and period. A multiple of pretax profit is not automatically a multiple of EBITDA, even if a speaker uses earnings as shorthand for both.
Sey uses EBITDA for an initial screen because an incoming owner may change borrowing and investment decisions. That does not make the excluded costs disappear. Machinery still needs maintenance and replacement, taxes require cash, customers may pay later than revenue is recognized, and acquisition debt must be serviced. Moving from EBITDA to cash therefore requires further work. Watch source
Ask for a reconciliation from the accounts to the metric used in the offer. Then distinguish historical EBITDA, an adjusted sustainable estimate and a forecast dependent on improvements. The collection’s margin-improvement illustration is useful for understanding sensitivity, but a proposed improvement is not already-earned profit. Similarly, its rough debt-coverage examples sometimes use earnings as a cash proxy. They teach the burden of repayment, not a complete lender calculation. Consistent labels prevent a superficially cheap valuation from resting on an inflated denominator. Watch source Watch source
Follow the connections
Adjusted EBITDA · Cash flow · Valuation multiples.
Continue in the course: Earnings versus cash.
Numbers in context
- HVAC target financial normalization · £7m revenue; FY March 2023 £1.9m PBT; FY March 2024 £1.7m PBT; normalized £1m EBITDAMixed
Historic pretax earnings are adjusted downward when discussing a sustainable HVAC earnings base.
Later statements include both results and forecasts; PBT and EBITDA are different measures and the company name is uncertain. Includes audio recovered with Whisper; amounts and wording have not been independently verified.
- Preferred business revenue floor · £5mRule of thumb
The preferred target scale is intended to leave room for a professional management salary.
A later steel screen also mentions £0.5m–£1m pretax profit; turnover alone cannot establish management affordability. Includes audio recovered with Whisper; amounts and wording have not been independently verified.
- Illustrative insolvency compensation · €500k revenue? text says half a million revenue; €150k pretax; €200k/year draw vs €100k/year comparator; 2–4 yearsHypothetical
An insolvency illustration compares owner compensation with an alternative annual salary.
Currencies switch and totals are unclear; the associated legal proposition is unverified.
- Bank lending multiples · Historical 2x–3x; difficult current request <2xPersonal experience
Sey contrasts earlier bank leverage expectations with a more difficult refinancing request.
The earnings denominator switches between EBIT and EBITDA, limiting comparability.
- Illustrative transaction · £1m pretax earnings; 4x price=£4m; £3m upfront=75%; £1m laterHypothetical
A simple offer splits the headline price between completion cash and later consideration.
Fixed deferral and an earn-out have different payment conditions and are not interchangeable.
Sources & further viewing 4 videos
The explanations on this site are independent synthesis. Follow each original for full context. A reported experience is not independent proof of a transaction.
- Educational EBITDA focus
- Rule of thumb DSCR framing
- Opinion No-improvement base case and margin reversion