EBITDA represents the "cash flow generating" capacity of a business and is often used in a short-hand valuation calculation when tied to an "EBITDA multiple". While very simple in terms of financial analysis, EBITDA based valuation is very heavily weighed in financial circles. As mentioned previously, EBITDA is an important (but imperfect) measure of a company's financial profile as it excludes a number of important issues (non-recurring items, cash debt service / burden, required vs discretionary capital investments, etc.) but "the implied EBITDA multiple" for a growth investment or acquisition is often compared to similar transactions in the same industry and offers a sense of relative valuation that must "make sense" to investors ("expensive" vs "cheap" valuation). It is, in a sense, a proxy for a discounted cash flow analysis in that all businesses are worth the risk-adjusted discounted value of expected future cash flows. A rapidly growing business would typically garner a higher EBITDA multiple vs a slower growing business (more future cash flow relative to today's cash flow would suggest a higher cash flow multiple). A business offering a high percentage of recurring revenue would also deserve a higher multiple (lower risk set of cash flows means lower required discount rate and higher implied EBITDA multiple relative to today's cash flow). Also, smaller businesses often trade at lower EBITDA multiples vs larger version of same business line (smaller businesses have more risk, less access to capital and fly much closer to the hard deck to borrow an expression). What is a sensible EBITDA multiple for your business? Drop me a note - happy discuss in more detail.