EBITDA

EBITDA strips out financing choices (interest), tax strategy (taxes), and accounting estimates for long-lived assets (depreciation and amortization) to show what the business earns from operations alone. In a PE acquisition, the buyer typically pays a multiple of EBITDA — e.g. 5x EBITDA on a $4M EBITDA business = $20M enterprise value. Both the EBITDA number AND the multiple are negotiated. Buyers will aggressively challenge the EBITDA number during diligence by removing "add-backs" the seller claims (owner salary, personal expenses, one-time items) that can't be documented. A founder's stated EBITDA and a buyer's verified EBITDA are often significantly different numbers.