Ebitda is a financial performance indicator for businesses. EBITDA are earnings before interest, taxes, depreciation and amortization, and is a financial calculation used by business analysts, accountants, and capital market gurus as the main indicator of operating cash flow and profit. EBITDA is used in financial analysis to determine the health and profit of a business. When private firms are acquired, they typically are valued based on a multiple of EBITDA. Multiples are determined by the industry, sector growth rate, business model, profit margin and general business strength. In order to calculate EBITDA, use the following formula: EBITDA = Income before Taxes + Interest Expense + Depreciation + Amortization Earnings are not the same as business sales or revenue. Revenue is the amount a company earns before deducting cost of goods sold, all expenses, and any business losses. Earnings are often referred to as net earnings or net income. Profit = Revenue – Expenses All profit is not the same; businesses have gross profit and net profit, and each determine a business’s gross profit margin and net profit margin. Gross Profit = Revenue from business minus COGS (cost of goods sold). COGS are expenses for creating the business’s product or service. Net Profit = Revenue – COGS – All Other Business Expenses (including taxes) Cash Flow = Revenue based on the timing of cash or payments entering the business – expenses as they are paid from the business Producing decent ebitda is critical to high margin businesses with low cost of goods sold if they want to sell their businesses at a strong valuation. Saas (software as a service) businesses trade based on multiples of ebitda. Business valuations vary based on the sector, growth rate and market size. Business valuations firms use ebitda as a performance indicator, which is why it is so important to entrepreneurs, venture capitalists, banks, and small business owners. RIA firms sell or merge based on a wide range of multiples.  Mercer Capital provides valuation services for RIA firms: http://mercercapital.com/assets/Article-Valuing-RIAs-2015.pdf.  RIA Database is a key resource for the RIA M&A community. They provide profiles on all registered investment advisors, historical assets under management since 2006, and other comparable size and growth statistics. For another look at ebitda, Kahn Academy provides a video: