Module II· Interview Essentials — ValuationBasic

Question

What is EBITDA, and why is it the standard valuation multiple?

Answer

Definition

```
EBITDA = Earnings Before Interest, Taxes, D&A
= Net Income + Interest + Tax + D&A
```

Why it's the dominant multiple

Capital-structure-neutral: before interest → independent of leverage
Tax-jurisdiction-neutral: before taxes → comparable across rates
Cash approximation: D&A is non-cash, closer to cash flow than net income
More stable across cycles than net income

Limitation

Ignores capex. For capital-heavy industries (telecom, steel), EBIT or EBIT − capex is more meaningful.

Rule of thumb — multiples

Mature industry: 6–9x
Growth company: 12–18x
SaaS: 20–35x

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