EBITDA

Earnings before interest, taxes, depreciation, and amortization; a proxy for operating profitability.

Definition

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It measures a company's operating profitability by stripping out financial structure (interest), tax jurisdictions (taxes), and accounting choices (depreciation/amortization). For startups, EBITDA is typically negative as they invest in growth. It is commonly used in valuation multiples (EV/EBITDA) for more mature companies.

Why it matters

Positive EBITDA means the company generates operating profit, reducing dependence on fundraising. Negative EBITDA means the company is burning cash on operations and will eventually need more funding. EBITDA margin improvement is a key metric for later-stage companies.

Example

A company has $20M revenue, $12M in operating expenses, $2M in depreciation, and $1M in interest. EBITDA = $20M - $12M + $2M = $10M (adding back D&A). EBITDA margin is 50%.

Related terms

Gross Margin

Revenue minus the direct costs to deliver the product, expressed as a percentage of revenue.

Rule of 40

A benchmark that says growth rate plus profit margin should exceed 40% for a healthy SaaS company.

Enterprise Value (EV)

A company's total value including debt and subtracting cash, used for comparing companies.

Valuation Multiple

A ratio (like revenue multiple) used to estimate a company's worth relative to a financial metric.

Contribution Margin

Revenue minus all variable costs, showing how much each dollar of revenue contributes to fixed costs.

Burn Rate

How much cash a company spends per month beyond what it earns.

More from Startup Metrics

This definition is an educational summary. It is not legal, tax, or investment advice. Specific terms in your equity grant or company documents may differ.