EBITDA

Each word in the acronym is an adjustment: start with net income, then add back interest expense (a financing choice, not an operating one), taxes (which vary by ownership structure), depreciation (a non-cash charge on physical assets), and amortization (a non-cash charge on intangible assets like patents or customer lists). The result is meant to approximate how much cash the business generates from its core operations, independent of capital structure or accounting elections. In private equity and direct investing, deal prices are routinely quoted as a multiple of EBITDA — for example, "twelve times EBITDA" as an illustrative purchase price anchor.

Why do family offices care? Because when evaluating an acquisition or a fund's portfolio companies, EBITDA multiples provide a quick, comparable shorthand across businesses with different debt loads and tax situations. A family comparing two potential acquisitions in different industries can use EBITDA multiples to get a rough sense of relative valuation before diving into full due diligence.

EBITDA has well-known limitations, and sophisticated buyers treat it as a starting point, not a conclusion. It ignores capital expenditure requirements — a business that must constantly reinvest in equipment may look attractive on EBITDA but generate little actual free cash. A quality of earnings analysis typically scrutinizes EBITDA adjustments closely, since sellers often add back expenses they claim are one-time, which can significantly overstate the number. Families working on acquisitions should involve qualified accountants and attorneys to stress-test any EBITDA figure presented to them.