Private equity (PE) firms are obsessed with EBITDA because it serves as a standardized, proxy metric for operating cash flow and a company's ability to service debt in leveraged buyouts. It allows investors to compare profitability across different companies by stripping out financing, tax, and accounting complexities, directly driving valuation multiples.
Used to indicate a private company's debt loan
EBITDA is an important metric in private equity because it's also used to indicate a private company's debt load. As a reminder, the “B” and “I” in EBITDA stand for “before interest”, so the liquidity to service debt obligations comes from EBITDA.
According to Buffett, EBITDA is not reflective of a company's true financial performance due to neglecting capital expenditures (Capex) and changes in working capital, among various other issues.
EBITDA offers insight into a company's operational performance, independent of its capital structure or tax situation. It is a popular metric for investors and analysts to evaluate a company's underlying performance by excluding interest, taxes, depreciation, and amortization.
Earnings before Interest, Tax, Depreciation, and Amortization (EBITDA) is not just a key concept in private equity (PE), but across finance as well. It serves as a core measure of a company's operational profitability, allowing fund managers to assess whether their investment will likely generate a strong return.
The Rule of 40 states that, at scale, the combined value of revenue growth rate and profit margin should exceed 40% for healthy SaaS companies. The Rule of 40 – popularized by Brad Feld – states that an SaaS company's revenue growth rate plus profit margin should be equal to or exceed 40%.
As of January 2026, Coca-Cola's (KO) P/E ratio is around 23.3, while Coca-Cola Bottling (COKE) is slightly higher at approximately 23.2-23.23, indicating how much investors pay for each dollar of earnings, with KO's lower than its 12-month average but still reflecting expectations for future growth. These figures can vary slightly depending on the source and exact timing, but generally hover in the low 20s for KO and slightly higher for COKE, with KO's valuation trending down from its recent average.
This preference reflects his belief that understanding the core earnings power of a business is crucial for making informed investment decisions. In summary, Buffett's preference for EBIT over EBITDA is grounded in his commitment to value investing and understanding a company's true profitability.
EBITDA can misleadingly present unprofitable firms as financially healthy by omitting certain expenses. Critics argue that EBITDA can be manipulated, making companies appear stronger than they are. Unlike operating cash flow, EBITDA excludes changes in working capital, potentially hiding financial troubles.
A 2019 study by Harvard Business Review found either Vanguard, BlackRock or State Street is the largest listed owner of 88% of S&P 500 companies. There is a perception that a few select companies own a vast majority of the stock market.
The Rule of 70 in Private Equity (PE) is a quick estimation tool, derived from the general Rule of 70, that helps gauge how long it takes for a PE investment's value (or its returns) to double by dividing 70 by the annual rate of return (or IRR), providing a snapshot of compounding impact, though it's a simplified estimate assuming constant growth, ignoring fees, taxes, and real-world volatility. For example, a 10% PE return rate suggests doubling in roughly 7 years (70/10).
When considering the level of cash that a company generates from operations, it's useful to remove non-operational impacts on cash flow. Therefore, EBITDA gives investors a metric to easily compare your company with others.
10X EBITDA refers to a company's earnings before interest, taxes, depreciation, and amortization (EBITDA) multiplied by 10. It is a valuation metric investors and analysts use the calculator to evaluate and compare companies, especially for acquisition purposes.
Warren Buffett's 8+8+8 Rule — A Lesson for Every Professional This rule reminds us of the importance of balance in our daily lives: 8 hours for work, 8 hours for rest, and 8 hours for personal time. This principle highlights the value of employee well-being, productivity, and sustainable performance.
“The hardest thing in the world to understand is the income tax.” Albert Einstein hit the nail on the head with this oft-repeated quote. The U.S. Tax Code is long, complex, and ever-changing. This is especially true for people with higher incomes, changing life circumstances, and families to consider.
The mean historical PE ratio of Apple over the last ten years is 23.78. The current 33.06 PE ratio is 39% above the historical average. Over the past ten years, AAPL's PE ratio was at its highest in the Dec 2024 quarter at 40.44, with a price of $255.59 and an EPS of $6.32.