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.
Comments