Cash Earnings (EBITDA) – the ultimate indicator of value

Cash Earnings (EBITDA) – the ultimate indicator of value

ebitdaThe trend of the EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation is probably the most important figure to manage in a business.  The EBITDA trend shows the increasing or decreasing value of a business.  It is the Net Cash generated (if the balance sheet is under control) for use in the business or distribution to the shareholders/investors.

The EBITDA trend exposes SO many secrets about the business. Digging into the figures, it can show:

  • Whether the marketing and sales systems are effective, if the market is strong or weak;
  • Whether costs are under control, if the workforce is effective, are systems in place to minimise;
  • Whether the investment (return on funds invested) is growing or decreasing which is CRITICAL in the valuation process.

You should be measuring your EBITDA (trend) monthly to see if your investment is growing or decreasing in value and if it is not – DRILL INTO THE NUMBERS.

My experience is that businesses do not look at their trends let alone the net value of their investment in their business – its often their biggest investment in their lives and so warranats some attention.

 

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