Why EBITDA, specifically

EBITDA, earnings before interest, tax, depreciation and amortization, strips out financing choices (interest), tax jurisdiction, and accounting choices about how equipment/intangibles are expensed, leaving something close to "cash profit the core business actually produces." PE cares about EBITDA specifically because it's what debt gets sized against (Lesson 15) and what exit multiples get applied to (Lesson 13), nearly every number later in this course is either EBITDA itself or a multiple of it.

EBITDA: earnings before interest, tax, depreciation, and amortization, a proxy for the cash a business's core operations generate, independent of how it's financed or taxed.

Revenue is not automatically value

This is also where a common beginner mistake gets corrected directly: revenue growth is not automatically value growth.

£10m of incremental revenue does not automatically mean £10m, or anything close to it, of value.

If that £10m came with £9m of new cost (more support staff, heavier discounting to win it, more infrastructure), it added roughly £1m of EBITDA, and it's that £1m, not the £10m, that an exit multiple gets applied to.

  • Meridian: £100m revenue, £20m EBITDA, a 20% EBITDA margin, the number Lesson 12's checkpoint will ask you to judge.
Illustrative £10m of incremental revenue, not Meridian's full P&L. The margin on new revenue is what decides how much of it becomes value.

Checkpoint

  • EBITDA: earnings before interest, tax, depreciation, amortization.
  • Revenue growth: only creates value to the extent it drops through to EBITDA, the margin on new revenue matters as much as its size.

If anything here still feels unclear, ask before moving to Lesson 11.