Does EBITDA include depreciation?

No. EBITDA adds depreciation (and amortization) back to net income precisely to exclude their effect. That gives you a measure that does not penalize for investment policy in fixed assets.

Why do they use EBITDA multiples instead of P/E to value my company?

P/E (price/earnings) depends on capital structure and taxes. Two operationally identical companies with different debt levels would have different P/Es. The EV/EBITDA multiple removes that distortion and is the standard in M&A.

What is normalized EBITDA and why does it matter in a sale?

Normalized EBITDA adjusts historical EBITDA to reflect only recurring revenue and expenses: it excludes one-off items, owner expenses, above-market compensation and other adjustments a buyer would not assume. It is the base that buyer and seller negotiate in most transactions. In the anonymized transaction example in the article, the normalization discount was ~29% — a gap that at a 4x multiple represents MXN $1.6M in enterprise value. You can go deeper in the normalized EBITDA glossary term.

How do I get EBITDA if I only have the income statement?

Take net income and add taxes, interest, depreciation and amortization. Those line items appear in the income statement or in notes to the financial statements. If the company reports EBIT, then EBITDA = EBIT + Depreciation + Amortization. You can use the EBITDA calculator as a starting point.

What is EBITDA and how is it calculated

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is the metric a buyer uses to value your company. It strips out financing costs, taxes and non-cash items — depreciation and amortization — to approximate the business’s pure operating profitability. In a company sale, EBITDA is the base for the multiple: if your EBITDA is MXN $8M and the sector pays 4.5x, your approximate enterprise value is MXN $36M. Understanding how EBITDA is calculated and normalized is key to negotiating with buyers and lenders in Mexico.

How is EBITDA calculated?

The EBITDA formula starts from net income and adds back the items that do not reflect pure operating profitability:

EBITDA = Net Income + Taxes + Interest + Depreciation + Amortization

The calculation order is:

Take net income from the income statement.
Add income taxes.
Add interest expense.
Add depreciation of fixed assets.
Add amortization of intangibles and deferred charges.

Item	MXN
Net income	4,200,000
+ Taxes	1,900,000
+ Interest	1,100,000
+ Depreciation	600,000
+ Amortization	200,000
EBITDA	8,000,000

At a market multiple of 4.5x, estimated enterprise value would be MXN 36,000,000. You can calculate EBITDA from your numbers with the EBITDA calculator.

What is the difference between reported and normalized EBITDA?

Reported EBITDA is what comes from the income statement. Normalized EBITDA is what a buyer and lender actually underwrite: it adjusts for non-recurring items, owner expenses and above-market compensation to reflect what the business would earn under a standard operator.

Reported EBITDA	4,850,000
− Customer concentration (top 5: 54% of revenue)	(388,000)
− Revenue quality 2024 (14% decline, 56% cash, no contracts)	(291,000)
− Portfolio instability (churn 37% vs 20% threshold)	(243,000)
− Institutional cost (controls, ERP, insurance, compliance)	(291,000)
− Transition (owner dependency 85% of activities)	(194,000)
Normalized EBITDA	3,443,000

Total normalization applied: ~29% discount on reported EBITDA. At a 4x multiple on normalized EBITDA, resulting EV: MXN 13,772,000. Source: real anonymized transaction, distribution sector, Mexico 2024–2025.

The gap between reported and normalized EBITDA is where most deals break. A seller anchored to the reported number and a buyer who underwrite the normalized one are negotiating on different bases. Whoever builds the normalization bridge first controls the conversation. You can go deeper on the mechanics of adjustments in Normalized EBITDA.

What is EBITDA used for in M&A?

Use	Description
Base for multiples	Buyers and lenders use EBITDA multiples (EV/EBITDA, debt/EBITDA) to compare companies of different sizes, sectors and tax structures. The buyer pays based on historical or projected EBITDA; the bank limits leverage to 3x–5x EBITDA by sector.
Proxy for operating cash flow	Approximates the cash the business generates before paying debt and taxes. It does not replace free cash flow (FCF) but serves as a quick reference for debt-servicing capacity.
Unit of comparison	Normalizing by size facilitates comparables and precedent transactions. In M&A normalized EBITDA is used (recurring revenue and expenses). Full framework: EBITDA multiple.

What are the limitations of EBITDA?

EBITDA does not capture leverage, recurring capex or concentration risk; the buyer reconciles to free cash flow and capital structure in due diligence.

Limitation	Effect
Hidden debt	A distributor reports EBITDA of MXN 8,000,000; at 4.5x enterprise value would be MXN 36,000,000. With debt of MXN 33,000,000 equity value collapses to MXN 3,000,000. EBITDA does not capture leverage.
Maintenance capex	EBITDA of MXN 8,000,000 with annual maintenance capex (fleet, warehouses) of MXN 3,500,000: free cash flow available to the shareholder drops sharply. EBITDA does not capture recurring investment requirements.
Customer concentration	72% of revenue from three clients; EBITDA does not capture the risk. In diligence the buyer reconciles to FCF and reviews dependency. More in due diligence.

On the blog:

How to prepare your company for a sale: what the buyer will review before making an offer — what the buyer reviews before offering.

How to value a services company in Mexico — multiples, adjustments and key factors.

Why your company may be worth less than 3x EBITDA — and what to do about it — factors and preparation.

How to structure a seller note in Mexico: rate, term and conditions — rate, term and conditions.

What to look for before making a purchase offer — factors that determine whether the price is reasonable.

The sale process: what the buyer does at each stage — stages, documents and buyer decisions.

What are common questions about EBITDA?

Does EBITDA include depreciation?: No. EBITDA adds depreciation (and amortization) back to net income precisely to exclude their effect. That gives you a measure that does not penalize for investment policy in fixed assets.
Why do they use EBITDA multiples instead of P/E to value my company?: P/E (price/earnings) depends on capital structure and taxes. Two operationally identical companies with different debt levels would have different P/Es. The EV/EBITDA multiple removes that distortion and is the standard in M&A.
What is normalized EBITDA and why does it matter in a sale?: Normalized EBITDA adjusts historical EBITDA to reflect only recurring revenue and expenses: it excludes one-off items, owner expenses, above-market compensation and other adjustments a buyer would not assume. It is the base that buyer and seller negotiate in most transactions. In the anonymized transaction example in the article, the normalization discount was ~29% — a gap that at a 4x multiple represents MXN $1.6M in enterprise value. You can go deeper in the normalized EBITDA glossary term.
How do I get EBITDA if I only have the income statement?: Take net income and add taxes, interest, depreciation and amortization. Those line items appear in the income statement or in notes to the financial statements. If the company reports EBIT, then EBITDA = EBIT + Depreciation + Amortization. You can use the EBITDA calculator as a starting point.

Sources

Normalizing EBITDA before a sale avoids expectation gaps between seller and buyer. Go deeper on EBITDA multiple and the guide Valuation methods for companies in Mexico: when to use each to bring the numbers into the process.