EBITDA: Down but not out

EBITDA and EBITDA multiples were widely used during the dot-com era, but fell out of favor in the U.S. in recent years. EBITDA is not an accepted measure under U.S. generally accepted accounting practices (GAAP). However, EBITDA and EBITDA multiples continue to be widely used in Europe, partly driven by increased flexibility in this regard under IFRS. As IFRS is gaining more ground in the United States and the impact of European companies in the United States is increasing, we can expect to see greater use EBITDA. This is illustrated in the acquisition of Anheuser-Busch by InBev in 2008 which was largely based on an EBITDA multiple. This article examines the use of EBITDA by companies from Europe’s largest capital markets, and discusses the benefits and shortcomings of this measure. This information is relevant for U.S. analysts who must be prepared for the increased reporting of alternative performance measures like EBITDA.