EBIT or EBITDA: Which Profit Figure Counts in a 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.

Both figures are the starting point of the multiples method: metric times industry factor equals company value. Whoever picks the wrong basis — or mixes EBIT multiples with EBITDA multiples — can easily be off by hundreds of thousands.

What is the difference between EBIT and 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

The only difference is depreciation and amortisation. 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.

Why is the EBIT multiple higher than the EBITDA multiple?

Pure arithmetic: the same company has the same value regardless of the metric. Because EBIT is smaller than EBITDA, the factor applied to it must be larger — for the same industry, EBIT multiples often sit 20 to 30 percent above EBITDA multiples, according to dealorigination.

This is where the most common mistake happens: applying an EBIT multiple from a table to EBITDA. The result looks pleasing — and is simply wrong. Check first which metric any multiples table refers to. Industry ranges on an EBITDA basis are covered in EBITDA multiples by industry.

When is EBITDA the better basis — and when EBIT?

The rule of thumb follows capital intensity.

EBITDA suits capital-intensive business models: industry, manufacturing, logistics, retail with own warehousing. It makes companies with different investment histories and depreciation policies comparable — which is why it is the most common basis in the M&A market.

EBIT fits where depreciation is small or investment has to be earned continuously: consulting, software, agencies, services. Here EBIT sits closer to sustainable earning power.

No serious valuation hides EBITDA's weakness: it ignores that machines must be replaced. A buyer of a manufacturing business therefore always checks the capex ratio — a high EBITDA on chronically outdated equipment is a paper tiger.

Normalise before you multiply

The valuation basis is never the raw figure from the financial statements but normalised EBIT/EBITDA: one-off effects removed, a market-rate managing director salary instead of the owner's draw, private items out. Every normalised euro works through the factor — at a multiple of 5, an underpriced salary of EUR 50,000 makes a quarter of a million in difference. How the valuation fits together overall is shown in What is my company worth?

For scale: according to the ongoing market survey by exit-coach.de, EBITDA multiples in the German-speaking SME market recently ranged from around 2.4x (small consumer-goods businesses) to over 10x (larger software companies) — industry and company size define the field, not the average.

From company value to the amount paid out there is one more step: net financial debt is deducted — explained in Net debt.

Is EBIT or EBITDA higher?

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

Which figure do buyers use in an acquisition?

Normalised EBITDA dominates as the common language of the M&A market because it neutralises depreciation and financing policy. Serious buyers still examine both figures plus the capex ratio — and re-normalise themselves.

Can I convert EBIT multiples into EBITDA multiples?

Not as a rule of thumb. The relationship depends on the industry's depreciation level. Use multiples only on the metric they were compiled for — anything else creates a false precision that falls apart in negotiation.

Real value emerges in negotiation, not in a formula. For a realistic, independent assessment: IGCP Capital Partners. → igcp.at