EBITDA might sound complex

but here's the truth:

EBITDA is a measure of profitability that excludes the costs of financing, taxation, and asset ageing.

EBITDA stands for earnings before interest, taxation, depreciation and amortization.

• Earnings: Money your business makes

• Interest: The cost of borrowing money

• Taxation: Money owed to the government

• Depreciation: Accounting for tangible (physical) assets that lose value over time

• Amortization: Similar to depreciation, but for intangible assets (such as patents)

EBITDA gives you a clear view of the income (your earnings) from your business’s operations by excluding the costs generated by other areas of the business: interest on loans, taxation depreciation and amortization.

It's simply your business performance without the noise.

Here are the 3 biggest EBITDA mistakes I see leaders make:

1. Using the wrong formula

↳ Pick your method based on your data, not convenience

↳ Bottom-up works best with clean financials

↳ Top-down is better for quick analysis

2. Missing crucial adjustments

↳ One-time or unusual events need to be excluded

↳ Non-recurring expenses should be identified

↳ Lease vs. buy decisions must be normalized

3. Ignoring industry context

Manufacturing: 10-15%

Services: 15-25%

Tech: 15-20%

Retail: 5-10%

Software: 20-30%

Pro tip: Your margin isn't "good" or "bad" until you compare it to your industry.

Here's your EBITDA success framework:

1. Check cash flow always

↳ EBITDA isn't cash, and cash is still king

2. Know your adjustments

↳ Clean data leads to better decisions

3. Track working capital

↳ Because EBITDA won't show you the full picture

Remember:

The goal isn't to have the highest EBITDA.

It's to understand what your EBITDA is telling you.