Does EBITDA include depreciation?

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

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 identical operating companies with different debt would have different P/E. 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, personal expenses, above‑market compensation, and other adjustments a buyer would not assume. It is the base that seller and buyer negotiate in most transactions.

How do I get EBITDA if I only have the P&L?

Take net income and add taxes, interest, depreciation, and amortization. All of those appear on the P&L or in notes to the financial statements. If the company reports EBIT, EBITDA = EBIT + Depreciation + Amortization.

EBITDA: what it is, how it is calculated, and what it is used for in M&A | M&A Glossary

EBITDA is the number the buyer will use to value the company: earnings before interest, taxes, depreciation, and amortization. It excludes financing cost, taxes, and non‑cash items, so it approximates pure operating profitability. In a sale, EBITDA is the base for the multiple — if EBITDA is 6 M MXN and the sector pays 5×, the company is worth ~30 M. Buyers and banks use it to compare and to cap debt. Understanding EBITDA and its normalization is understanding how much someone can pay for what was built.

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How do you calculate EBITDA?

The EBITDA formula starts with 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 P&L.
Add income taxes.
Add interest expense.
Add depreciation of fixed assets.
Add amortization of intangibles and deferred charges.

Example (Mexican SME, figures in MXN):

Item	Amount (MXN)
Net income	2,500,000
+ Taxes	1,200,000
+ Interest	800,000
+ Depreciation	1,500,000
+ Amortization	300,000
EBITDA	6,300,000

If the sector market multiple were 6×, estimated enterprise value would be 37.8 M MXN.

What is EBITDA used for in M&A?

Base for multiples. Buyers and lenders use EBITDA multiples (EV/EBITDA, debt/EBITDA) because they allow comparison across size, sector, and tax structure. A buyer pays based on historical or projected EBITDA; a bank caps leverage at 3×–5× EBITDA by sector.
Proxy for operating cash flow. EBITDA approximates the cash the business generates before paying debt and taxes. It does not replace free cash flow (FCF) but works as a quick reference for repayment capacity.
Unit of comparison. Normalizing by size, it supports analysis of public comparables and precedent transactions. In M&A the work is done with normalized EBITDA to reflect recurring revenue and expenses, excluding one‑off or non‑operating items.

What are the limitations of EBITDA?

It does not capture debt. A distributor reports 12 M MXN EBITDA; at 5× the enterprise value would be 60 M. But it has 55 M of debt — real equity value is 5 M, not 60 M. EBITDA ignores capital structure; that is why due diligence always reviews net debt as well as the multiple.
It does not reflect maintenance capex. EBITDA is 12 M but maintenance capex (fleet, warehouses) is 5 M per year; cash available to the shareholder drops. EBITDA does not deduct the recurring investment needed to sustain the operation; that is why it is reconciled to free cash flow before decisions.
It does not incorporate concentration or dependency. If 75% of revenue comes from one customer who can switch suppliers, EBITDA does not show it. The multiple a buyer is willing to pay and debt capacity are adjusted for that risk: in due diligence customer concentration and key‑person dependency are reviewed, not just EBITDA.

What do buyers and sellers ask about EBITDA?

Does EBITDA include depreciation?: No. EBITDA adds depreciation (and amortization) back to net income precisely to exclude their effect. That gives a measure that does not penalize for fixed‑asset investment policy.
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 identical operating companies with different debt would have different P/E. 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, personal expenses, above‑market compensation, and other adjustments a buyer would not assume. It is the base that seller and buyer negotiate in most transactions.
How do I get EBITDA if I only have the P&L?: Take net income and add taxes, interest, depreciation, and amortization. All of those appear on the P&L or in notes to the financial statements. If the company reports EBIT, EBITDA = EBIT + Depreciation + Amortization.

For a full explanation of how it is adjusted and negotiated, see Normalized EBITDA.

In this glossary:

Normalized EBITDA — the number that is actually multiplied in a sale.

EBITDA multiple — how the market pays for EBITDA.

DCF — alternative method that also uses EBITDA as an input.

DSCR — debt capacity indicator based on EBITDA.

Business valuation — full overview of methods that start from EBITDA.

Sources

EBITDA is the central metric that determines company value in an M&A transaction. For a full picture of how it is used in valuation methods, see the guide to business valuation methods in Mexico.