EBITDA Is Used Widely in Analysis

EBITDA became a popular financial metric with the introduction of leveraged buyouts (LBOs) in the 1980s, when it was used to indicate the ability of a company to service debt by LBO firms and lenders. EBITDA/Sales ratio, for example, can be used to find the most efficient operator in a particular industry. EBITDA can be used to analyze and compare profitability trends of different companies across industries over time.

Through such ratios as Debt/EBITDA and EBITDA/Interest Expense, EBITDA is a popular proxy for a company’s ability to take on debt.