EBITDA

EBITDA stands for earnings before interest, taxes, depreciation and amortization. It's a company's operating profit with the effects of how it's financed (interest on loans), where it pays tax, and accounting write-downs of equipment and other assets taken out. The idea is to show how much the business itself earns from its operations, so companies with different loans or tax situations can be compared.

Unlike owner earnings (SDE), EBITDA assumes every role is paid a normal salary, including the founders' roles. That makes it the natural measure for companies large enough to be run by hired managers, and it's the figure most mid-sized and large company deals are priced on.

For small SaaS companies EBITDA is often a poor guide on its own. Software businesses have few assets to depreciate, so EBITDA is close to plain operating profit; and a young company that reinvests everything in growth can have almost no EBITDA while its revenue is worth a lot. That's why small software businesses are usually valued on ARR or owner earnings, and EBITDA becomes the main figure only when the company is larger, stable and run without its founders.