EBIT or EBITDA: the difference and what it means for valuation

EBITDA is profit before interest, taxes, depreciation and amortisation — EBIT already deducts depreciation. For a company valuation this means: EBITDA measures operating earning power before investment logic, EBIT accounts for the wear of machinery and equipment. Which figure is the right basis depends on the capital intensity of your business model.

Why the figure is related to enterprise value as standard in M&A is explained in EV/EBITDA.

How a robust company valuation comes about in a sale is described on our service page.

Both figures are the starting point of the multiples method: the figure times an industry-standard factor gives a reference value. Anyone who picks the wrong basis, or mixes up EBIT and EBITDA multiples, can easily be off by hundreds of thousands.

What is the difference between EBIT and EBITDA?

The difference is solely the depreciation of tangible and intangible assets, which EBIT deducts from EBITDA. The calculation makes it visible:

Item	Example
Net income	EUR 400,000
+ Taxes	EUR 130,000
+ Net interest	EUR 70,000
= EBIT	EUR 600,000
+ Depreciation & amortisation	EUR 250,000
= EBITDA	EUR 850,000

For a consultancy without machinery, EBIT and EBITDA sit close together. For a manufacturer with heavy fixed assets they diverge widely — in the example above by more than 40 percent (EUR 850,000 versus EUR 600,000).

How the sale process works as a whole is described in Selling a company.

Why is EBITDA alone not enough? A worked example with two businesses

Two businesses with the same EBITDA can mean very different things to a buyer, because EBITDA hides the cost of replacing assets. The following example is freely chosen and only shows the mechanics; it is not a market figure.

Figure (freely chosen example)	Business A: consulting	Business B: manufacturing
EBITDA	EUR 500,000	EUR 500,000
Depreciation	EUR 30,000	EUR 200,000
EBIT	EUR 470,000	EUR 300,000
Annual investment (capex)	EUR 25,000	EUR 180,000
EBITDA less capex	EUR 475,000	EUR 320,000

At the EBITDA level both businesses look the same. At the EBIT level and for EBITDA less investment, Business B sits roughly a third lower, because it has to put part of its earnings back into machinery every year. A buyer will therefore apply a lower factor to Business B's EBITDA — or value the investment backlog separately. Quoting EBITDA alone invites exactly this follow-up question.

Why is the EBIT multiple higher than the EBITDA multiple?

Because the same company has the same value regardless of which figure is used: if EBIT is smaller than EBITDA, the factor applied to it has to be larger. According to dealorigination, EBIT multiples for the same industry are often 20 to 30 percent above EBITDA multiples.

The conversion can be stated exactly: factor on EBIT = factor on EBITDA × (EBITDA ÷ EBIT). In the first example (EUR 850,000 to EUR 600,000) that would be about 1.4 times the EBITDA factor, in the example with Business A (EUR 500,000 to EUR 470,000) only 1.06 times. The flat 20 to 30 percent therefore only applies at medium capital intensity — which is why a flat conversion is dangerous.

This is exactly where the most common mistake happens: applying an EBIT multiple from a table to EBITDA. The result looks pleasing — and is simply wrong. With any multiple table, first check which figure it refers to. Industry ranges on an EBITDA basis can be found in the article EBITDA multiple by industry.

Is EBIT or EBITDA the better basis for valuation?

For capital-intensive business models EBITDA is the more common basis; for service providers with small depreciation, EBIT is closer to sustainable earning power. The rule of thumb follows capital intensity.

EBITDA suits industry, production, logistics and trade with its own warehouse. It makes companies with different investment histories and depreciation policies comparable — which is why it is the most widely used basis in the M&A market.

EBIT suits businesses where depreciation is small or where investment has to be earned continuously: consulting, software, agencies, services.

No serious valuation conceals the weakness of EBITDA: it ignores that machinery has to be replaced. A buyer of a manufacturing business will therefore always check the investment ratio (capex) as well — a high EBITDA with chronically outdated equipment is a false giant. Prepare both for the conversation: the adjusted EBITDA and an overview of investments over the last three to five years.

What is different for smaller businesses?

For smaller businesses, owner's salary and substance take priority, not an industry factor from a large-company table. For a sense of scale: according to the KfW Succession Monitor 2025 (survey of 13,079 SMEs, spring 2025), the asking prices of owners who want to hand over by 2029 average EUR 499,000, with a median of EUR 375,000. That corresponds, on average, to 1.2 times and, at the median, to 0.6 times annual revenue. These are owners' price expectations, not prices paid; but they show that many succession cases lie far below the size classes that multiple tables are built for.

For these businesses, what matters is the profit a successor actually earns after a market-standard managing director's salary. In practice that is usually a figure close to EBIT — and, for businesses with investment needs, EBITDA less capex.

Where does EBITDA appear in tax law — and is it the same thing?

EBITDA appears in tax law in the interest barrier rule, but there it is a separate, tax-determined figure and not the adjusted EBITDA of a valuation. In Germany, § 4h EStG limits the interest deduction to 30 percent of the relevant EBITDA; the rule does not apply if net interest expense is below EUR 3 million a year (legal status as of the last amendment of 22.12.2023). In Austria, since 1 January 2021, a comparable limit of 30 percent of tax EBITDA applies under § 12a KStG, with an allowance of EUR 3 million.

For the typical mid-sized company with moderate debt, this threshold is generally not reached. The distinction becomes relevant mainly in debt-financed acquisitions of larger companies: there it is worth not confusing tax EBITDA with valuation EBITDA. The tax assessment is a matter for the tax advisor.

Adjustments come before the multiple

The valuation basis is never the raw figure from the annual accounts, but the adjusted EBIT/EBITDA. Typical corrections:

1. Remove one-off effects (damage events, special sales, subsidies).
2. Replace the owner's salary with a market-standard managing director's salary.
3. Remove private items (vehicle, travel, family members without a role).
4. Bring rents on owner-held property to a market level.
5. Correct income and expenses relating to other periods.

Every adjusted euro feeds into value at the factor — at a multiple of 5, a managing director's salary set EUR 50,000 too low makes a quarter of a million difference. How the valuation is built overall is shown in What is my company worth?

According to the ongoing market survey by exit-coach.de, the range of EBITDA multiples in the German-speaking SME market most recently ran from around 2.4x (small consumer goods businesses) to over 10x (larger software companies) — industry and company size determine the range, not the average.

From enterprise value to the payout amount there is one more step: net financial debt is deducted — how that works is explained in Net debt.

Frequently asked questions

Is EBIT or EBITDA higher?

EBITDA is always at least as high as EBIT, because it adds depreciation back. The more capital-intensive the business, the larger the gap — often only a few percent for service providers, 30 percent and more for manufacturers.

Which figure do buyers use in an acquisition?

In the M&A market, adjusted EBITDA dominates as the common language, because it neutralises depreciation and financing policy. Serious buyers, however, always check both figures plus the investment ratio — and make their own adjustments.

Can I convert EBIT multiples and EBITDA multiples?

Not as a flat rule. The factor on EBIT follows from the factor on EBITDA times the ratio of EBITDA to EBIT, and that ratio depends on the depreciation level of your business. Only ever use multiples on the figure for which they were collected — otherwise you create a false precision that is taken apart immediately in negotiation.

Is the EBITDA from the interest barrier rule the same as the EBITDA used in valuation?

No. Tax EBITDA under § 4h EStG or § 12a KStG is a figure defined by tax law to limit the interest deduction. Valuation EBITDA is a result adjusted for one-off effects, owner's salary and private items.

Is EBITDA enough if my business has to invest a lot?

No. With high investment needs, EBITDA less ongoing investment is the more meaningful figure, because it shows what is left for the owner after assets have been replaced.

The real value is created in the negotiation, not in the formula. For a realistic, independent assessment: IGCP Capital Partners. → igcp.at

EBIT, EBITDA, adjusted earnings: the figures used in valuation are briefly defined in the M&A glossary.

You can try out which earnings figure you are working with directly: Calculate company value. How a sale process develops from there is described in our service Company valuation for a sale.