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The Pitfalls of EBITDA

Business values are very often expressed as a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization). People use EBITDA because intuitively, valuations makes more sense if they are expressed as a function of earnings rather than sales or assets. EBITDA though has several serious drawbacks. This article discusses the reasons why EBITDA should be nothing more than one of the tools used to determine agency value.

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