What Is EBITDA?

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EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization.

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It is commonly used as a rough measure of a company's operating profitability before financing, taxes and certain non-cash accounting expenses.

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A simplified calculation is:

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EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization

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Why Do Investors Use EBITDA?

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EBITDA can make it easier to compare businesses with different:

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• Debt levels
• Tax structures
• Depreciation
• Capital structures

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It is widely used in private equity, M&A and company valuation.

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But EBITDA is not the same as cash flow.

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A business can have strong EBITDA while requiring substantial capital expenditures or working capital.

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What Is an EBITDA Multiple?

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An EBITDA multiple compares a company's enterprise value with its EBITDA.

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The common calculation is:

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Enterprise Value ÷ EBITDA

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Suppose a company has:

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Enterprise Value: $100M

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EBITDA: $10M

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Its valuation is: 10x EBITDA

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What Is Enterprise Value?

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Enterprise Value, or EV, is a measure of the value of the entire operating business.

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A simplified formula is:

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Enterprise Value = Equity Value (Market Cap) + Debt − Cash

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ILPA's private-equity glossary similarly defines total enterprise value as a valuation measure that incorporates market capitalization, interest-bearing debt and preferred stock, less excess cash.

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Why EBITDA Multiples Matter

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Multiples allow investors to compare valuations across companies.

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For example:

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Company A: 8x EBITDA

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Company B: 14x EBITDA

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That does not automatically mean Company A is cheap or Company B is expensive.

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Differences can reflect:

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• Growth
• Margins
• Industry
• Risk
• Recurring revenue
• Competitive position
• Capital requirements

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Entry Multiple vs. Exit Multiple

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Private-equity investors often compare:

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Entry multiple: What multiple did we pay?

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with:

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Exit multiple: What multiple did we sell at?

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If a company was acquired at 8x EBITDA and sold at 12x EBITDA, some of the investment return came from multiple expansion.

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Returns can also come from:

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• EBITDA growth
• Debt reduction
• Cash generation

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Understanding the source of return matters.

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How MyFO Helps

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Many family offices have significant wealth tied to operating companies. For some families, the operating business is their largest asset. Others have built portfolios of direct ownership stakes across multiple private companies. Understanding how those businesses are performing, and what those ownership stakes are worth, is therefore an important part of understanding the family's overall wealth.

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With MyFO, families can connect directly to accounting systems such as QuickBooks, NetSuite, Sage and Xero through APIs, bringing operating-company financial data directly into MyFO.

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This includes the company's:

• Balance sheet
• Income statement
• Cash flow statement

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Instead of treating an operating company as a manually updated asset with a static valuation, MyFO can use this financial data to help families understand how the underlying business is actually performing.

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For EBITDA specifically, MyFO can use the company's financial data to normalize and calculate EBITDA, then track EBITDA over time. This gives families visibility into whether the operating performance and underlying value of the business are increasing or decreasing.

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MyFO also includes industry-specific valuation multiples based on data from NYU Stern School of Business, allowing families to apply an appropriate multiple to EBITDA to estimate the value of the company:

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Estimated Enterprise Value = EBITDA × Industry Multiple

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For example, if a business generates $5 million of EBITDA and the applicable industry multiple is 8x, its estimated enterprise value would be $40 million.

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MyFO also tracks ownership percentages within the underlying entities, so families can understand not only what the business is worth, but the value attributable to their specific ownership stake.

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If the attributable company value is $40 million and the family owns 25%, for example, its stake would be approximately $10 million, subject to any adjustments required to move from enterprise value to equity value.

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Families can also manually enter financial information, EBITDA and valuation assumptions when they do not want to connect an accounting system or want to use their own figures.

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This is particularly valuable for families whose wealth is concentrated in an operating business or who have invested directly in multiple private companies. MyFO brings financial performance, EBITDA, valuation, ownership and the family's attributable value together with the rest of the family's assets, providing a more complete picture of their overall wealth.

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This helps the family see a direct company's value not just as an isolated investment, but as part of overall:

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• Net worth
• Asset allocation
• Concentration
• Ownership

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In One Sentence

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EBITDA = a measure of operating earnings.

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EBITDA multiple = how much investors are paying relative to those earnings.

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Enterprise value = value of the operating business including its capital structure.