What is it?
EBITDA stands for earnings before interest, taxes, depreciation and amortization. BDC (the Business Development Bank of Canada) describes it as one of the most widely used measures of a company’s financial health and its ability to generate cash.
How is it used in business valuation?
BDC explains that entrepreneurs and business valuators often use EBITDA to work out a company’s value for a business sale or purchase. A common method is to apply a multiple to EBITDA to decide what the business is worth.
There is no fixed multiple. It changes with the trade, the timing, the sales trend, the lease terms and the market mood.
What to watch out for
- EBITDA is not a figure defined by official accounting standards (GAAP), so people may calculate it differently.
- For a small shop where the owner works in it, “seller’s discretionary earnings (SDE)”, which adds back the owner’s pay and personal costs, is often used instead.
- Confirm profit from tax returns and bank deposits, not from the seller’s words.
What the law and official sources say
Quotes are copied word for word. The "In plain words" lines are our explanation, not an official translation.
EBITDA is short for earnings before interest, taxes, depreciation and amortization. It is one of the most widely used measures of a company's financial health and ability to generate cash.In plain wordsEBITDA is earnings before interest, taxes and depreciation, and is one of the most widely used measures of a company’s financial health and ability to generate cash.
Source: bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business-guides/glossary/ebitda · checked Nov 2, 2026
Entrepreneurs and business valuators often use EBITDA to calculate a company's valuation for purposes of a business sale or acquisition. A common valuation method is to apply a multiple to EBITDA to determine how much the business is worth.In plain wordsEBITDA is often used to calculate a company’s value in a sale or acquisition, and a common method is to apply a multiple to EBITDA.
Source: bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business-guides/glossary/ebitda · checked Nov 2, 2026
Common questions
How is EBITDA different from net profit?
Net profit is what is left after interest, taxes and depreciation are all taken out, and EBITDA is the profit before them. EBITDA is used to compare the underlying profit of businesses.
Are small restaurants and shops valued by EBITDA too?
Small businesses where the owner works in them more often use seller’s discretionary earnings (SDE), and larger businesses run by staff without the owner more often use EBITDA. Either way the multiple changes with timing and the condition of the business.
Guides that use this term
Sources checked
- BDC, Business glossary: EBITDA · checked Nov 2, 2026