Business Glossary
What Is EBITDA?
EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) measures core operating profitability. It is widely used in UK business valuations and for comparing profitability across businesses with different financing structures.
The Formula
EBITDA = Net Profit + Interest + Tax + Depreciation + Amortisation
Worked Example — UK SME
A UK manufacturer: net profit £68,000, interest £12,000, tax £18,500, depreciation £24,000. EBITDA = £122,500. EBITDA margin = 14.9% of £820,000 revenue.
UK Benchmark
📊 UK SME EBITDA margins: Distribution 5–12%, Manufacturing 8–16%, Retail 5–10%, Professional services 15–30%, SaaS 15–40%. Most meaningful for asset-heavy businesses where depreciation is significant.
Common Questions
Why do buyers use EBITDA for valuations?
EBITDA removes financing structure and non-cash charges to reveal underlying cash-generating potential. For acquirers who will refinance the business, it provides a cleaner like-for-like comparison.
What multiple of EBITDA is a UK SME worth?
Typically 3–6x EBITDA depending on sector, size, growth rate, and customer concentration. Strong-growing SMEs in professional services or software can achieve 6–10x.
Is EBITDA the same as operating profit?
No. Operating profit adds back interest and tax only. EBITDA also adds depreciation and amortisation. For service businesses with no assets, the two are often nearly identical.
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