Is EBITDA the same as profit?
No. EBITDA sits above interest, tax, depreciation and every cash movement that is not in the P&L. A business can grow EBITDA every year while running out of money.
No. EBITDA sits above interest, tax and depreciation, and it ignores every cash movement that never appears in the profit and loss account. It is a measure of operating performance, not of money.
The three things it leaves out
Capital expenditure. A business replacing €250,000 of equipment every four years reports the same EBITDA as one that spends nothing. Depreciation was removed; the spending is real.
Working capital. Growth consumes cash. A business adding €400,000 of stock and receivables to fund expansion shows strong EBITDA while its bank balance falls.
Tax and interest. Both are real payments. Both come out after EBITDA.
- EBITDA
- €440,000
- Less capex
- −€130,000
- Less working capital growth
- −€95,000
- Less interest and tax
- −€120,000
The €440,000 business generated €95,000 of free cash. Both figures are true and they answer different questions.
Why valuation uses it anyway
Because it is comparable. Two businesses with different debt levels, different tax positions and different depreciation policies can be compared on EBITDA and cannot be compared on net profit. The distortions are removed on purpose.
The right response is not to distrust EBITDA but to show capital expenditure next to it — on your own terms, before a buyer asks. How EBITDA affects your valuation covers this; DCF valuation explained covers valuing on cash instead.