Ebitda

maxmagnus

Hi,

Recently I have been approached to sell my business on a forward multiple of EBITDA value, with a 7 multiple. Is EBITDA calculated on per year operating profit? Is that multiple too low?

My monthly earnings before interest and taxes are $40,000. It's a healthcare business.

Please help.

Thanks
Max

Bean_Counter

As you probably know, EBITDA is Earnings Before Interest Tax Depreciation & Amortisation. This measure is used to try to get to core operating results without taking into account how the business is financed (interest cost on loans versus cash put in by you, depreciation differences depending on how assets are financed e.g. HP versus leases) and located (e.g. different tax regimes in different locations.)

The multiple will be based on a years EBITDA in my experience.

When you say that your 'monthly earnings are $40,000', is that earnings as in turnover or earnings as in profit?

Whether the multiple is too low depends on the nature of your business and I would not like to state whether this is high or low and for you to take action or not on that basis. It is for you to decide what the business and the profits are worth to you in the future.

maxmagnus

Hi Bean Counter,

Thanks for reply.

When I said $40,000 earnings I meant $40,000 in profit.
So my business EBDITA would be:
($40,000 + Taxes + Interest + Depreciation + Amortisation) x 12
?

Bean_Counter

maxmagnus wrote: »

Hi Bean Counter,

Thanks for reply.

When I said $40,000 earnings I meant $40,000 in profit.
So my business EBDITA would be:
($40,000 + Taxes + Interest + Depreciation + Amortisation) x 12
?

As far as I can tell on this information, then yes.

maxmagnus

Thank you very much!