EBITDA- Should Startups consider as an important metric

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Most of us talk about financial metrics while we manage the business, EBITDA being one of the most of talked about. Earning Before Interest Tax Depreciation and Amortization. EBITDA basically used to calculate the operating profitability before the non-operating expenses (interest paid of loans) and non-cash charges (Depreciation and Amortization of sat your infrastructure etc.).

So if EBITDA is used as metric it gives advantage to start-up particularly if it has been able to grow the operations fast and keep the margins better, if EBITDA is considered as margin of sales it gives an good idea efficient operations and pace of the growth in operation a key criteria for future investments. This is particularly useful for startup that are working in cross domain areas with really no benchmarks from a key industry, as EBITDA avoids the impacts of financial power and decisions.

BUT cash is always King, EBITDA SHOULD NOT be used as a measure of cash flow, as it does not account some key financial aspects as for e.g. changes in working capital. Rather Operating Cash flow is a better metric to track the cash being deployed and used.

EBITDA if used in a correct can be powerful medium to convey the growth potential of the startup and also the execution capability of the founders.


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