For years, theEBITDA served as a universal reference to assess the financial performance of a business. Easy to calculate, compare and project, it remains a central indicator in the reading grids of traditional investors, in particular in private equity. However, behind its apparent simplicity, the EBITDA sometimes masks more than it reveals, and at a time when operational transparency becomes a requirement, it is advisable to question its relevance.
What does EBITDA measure?
EBITDA = operating profit + depreciation + provisions
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) measures the gross operational performance of the company, before financing choices, tax charges and asset depreciation. It allows you to assess the Generation capacity of results before non -cash elements and out of direct exploitation.
Why is EBITDA a benchmark for investors?
A simple and standardized indicator
The EBITDA facilitates the comparison between companies in sectors and various sizes, regardless of their financial structure or their tax policy.
A widely used valuation base
The multiple EBITDA (generally X6 to X12 in Midmarket) are used in LBO operations, industrial transfers or valuations of mature companies.
A rapid proxy of operational profitability
It gives an approximate image of the cash released by activity, useful for fast analyzes or screen screening.
A key indicator for lenders
The EBITDA is the basis of calculating banking covenants (e.g. Net / Ebitda debt ratio) in structured funding.
But why is it sometimes insufficient (even deceptive)?
He ignores the real cash consumption of cash
The EBITDA does not reflect either the working fund needs, the investments (CAPEX), the reimbursement of the debt.
It is easily manipulable
EBITDA “Adjusted” Or “Standardized” Can include many retirements: “exceptional” costs, growth expenses, restructuring costs … to the point of sometimes becoming a marketing indicator.
It does not measure net profitability
A positive Ebitda company can have a strongly negative net result or free fall cash.
It becomes obsolete in models with high intensity subscription or platform
In the SaaS or the Marketplaces, indicators such as the arr, the gross margin, the conversion cash or the efficiency capital are more relevant.
Benchmarks by sector
| Sector | Target EBITDA Marge (%) |
|---|---|
| SaaS B2B mature | 20 – 35 % |
| Digital services | 15 – 25 % |
| E-commerce | 5 – 15 % |
| On-premise software | > 30 % |
| Edtech / Healthtech | <10 % (Early-Stage) |
In Early-Stage, a negative Ebitda margin is tolerated. From series B, investors await a clear trajectory towards an Ebitda Break-Even.
How to use the EBITDA intelligently?
- Compare with other profitability indicators
– Free cash flow, ebe, cash conversion
– Identify significant differences - Clarify
– Do not multiply the “exceptional adjustments” in each turn
– justify the elements out of the calculation with consistency - Cross with the structure of the BFR and the Capex
– a high Ebitda but a negative flow flow = unbalanced management signal
- Follow the evolution over 12 to 24 slippery months
– to smooth the occasional effects and identify a structural trend
EBITDA remains an essential metric for traditional investors, but its use must be supervised. If it allows a simplified performance of performance, it can also mask the flaws of a model or tensions on cash. In the current environment, it is useful as a point of entry, but is no longer sufficient. Demanding investors are now watching Beyond the Ebitdatowards what really matters: cash, recurrence, operational efficiency.
See you tomorrow to talk about cash conversionor how to transform your profit into a real cash.
