EBITDA (TTM)

What is EBITDA (TTM)?

EBITDA started as a back-of-the-envelope shortcut in the 1980s leveraged buyout market and has since become the most widely cited profit measure in finance. The idea is to take a company's operating income, then add back the non-cash deductions of depreciation and amortization. What you are left with is a number that is supposed to approximate the cash generated by operations before any of it is paid out to lenders or to the tax authority. For an acquirer trying to decide what a business is worth, for a banker sizing a loan against a company's earning power, or for an analyst comparing two competitors with different debt loads and different capital intensities, EBITDA was meant to wash out the variables that the buyer or lender could change post-deal.

Used carefully, it does that job well. EBITDA puts a 90 percent debt-financed business and an all-equity competitor on the same line. It puts a high-tax US-domiciled company and a lower-tax Irish ADR on the same line. And it puts a manufacturer running thirty-year-old equipment with low ongoing depreciation next to one that just bought brand-new machinery on the same line, at least in the short term. That is why EBITDA is the lingua franca of mergers and acquisitions, private equity, and credit underwriting.

Used carelessly, it is one of the most misleading numbers in finance. Charlie Munger called it "bullshit earnings" because depreciation and amortization, while non-cash in the current period, are real economic costs that have to be funded eventually when the underlying assets are replaced. A trucking company can report strong EBITDA for years while its trucks slowly wear out, and the day the replacement bill comes due, the EBITDA story collapses. The right way to use EBITDA is as one number among several, not as a substitute for cash flow or earnings.

Formula

The two arrangements give the same answer when done consistently. Starting from operating income and adding back D&A is the cleaner approach because it preserves the operating boundary; starting from net income and adding back the four items lets you sanity-check that nothing unusual is hiding in the line above. Either way, the trailing twelve months convention adds together the four most recently reported quarters to smooth seasonality, and figures reported in foreign currencies are translated to US dollars for cross-company comparison. Historical values are anchored to the date the filing actually became public, so a backtest using EBITDA cannot accidentally use figures that were not yet known on the decision date.

How to Interpret EBITDA (TTM)

EBITDA is most informative as a margin (EBITDA divided by revenue) and as a multiple (enterprise value divided by EBITDA). Margins differ widely by industry. Mature software companies often run EBITDA margins of 30 to 45 percent. Specialty industrials sit in the 15 to 25 range. Distribution, large-scale retail, and most consumer staples land closer to 8 to 14. Capital-intensive industries like pipelines, telecom, and tower REITs can show EBITDA margins above 50 percent precisely because they have heavy depreciation that EBITDA is excluding; in those sectors EBITDA is genuinely useful because the assets being depreciated were funded long ago and the ongoing maintenance capex is a smaller line item.

The reference table below uses EV/EBITDA, the standard valuation multiple built on this metric.

EBITDA is unreliable in three places. It does not work for banks or insurers, whose interest expense is part of the operating model rather than a financing cost. It overstates the economics of asset-heavy businesses that need to spend continuously on equipment replacement; in those sectors, free cash flow is the more honest measure. And it is open to manipulation through "adjusted EBITDA," where management strips out items they prefer to ignore. Always check whether a quoted EBITDA figure is as-reported or adjusted, and what the adjustments actually are.

Why EBITDA (TTM) Matters for Investors

Three groups of professionals build their work around EBITDA. Lenders use it to size term loans and high-yield bonds; the standard covenant is total debt divided by EBITDA, with most leveraged credits sitting somewhere between three and six times. Private-equity sponsors use EBITDA as the headline metric for evaluating buyout targets, both because it abstracts away the seller's capital structure and because the multiple expansion or compression of EBITDA between purchase and exit drives the bulk of equity returns. And public-market analysts use EV/EBITDA as their default cross-sectional valuation multiple, because it works across capital structures in ways that P/E cannot. For a retail investor, the practical use is the same: EBITDA gives you a way to compare two businesses on operating profit while ignoring how they are financed, which is often the cleanest way to spot whether one is genuinely cheaper than the other.

Using EBITDA (TTM) in Stock Screening

The standard EV/EBITDA value screen ranks the US-listed universe from cheapest to most expensive on the multiple, then layers in a quality filter to weed out genuinely impaired businesses. A common implementation requires EV/EBITDA below 10, EBITDA margin above 15 percent, and positive EBITDA growth over the last three years. The first condition finds cheapness, the second filters for sectors where EBITDA actually means something close to cash, and the third screens out businesses whose cheapness is the leading edge of a decline. A more conservative version adds a leverage cap: total debt divided by EBITDA below three times, which limits exposure to companies that look cheap on operating profit only because they are buried in debt. For income-style screens, EV/EBITDA below 8 combined with free-cash-flow yield above 6 percent finds businesses that are not just cheap on profit but actually producing the cash to back it up.

Backtesting with EBITDA (TTM)

EV/EBITDA has been studied extensively in academic and practitioner research, and it consistently shows up as one of the better-performing value factors in long-run US equity backtests, often comparable to or modestly better than P/E and book-to-market when used as a sorting variable. The signal is strongest when EBITDA-based value is combined with a quality screen built on margin stability or return on capital, which removes the worst of the value-trap exposure. Point-in-time integrity matters here for two reasons. First, restatements to depreciation policies and to special items happen often enough that using today's numbers on historical dates would create a meaningful look-ahead bias. Second, the EV component of EV/EBITDA depends on the share count, debt balance, and cash balance that were public at the time, not the figures that were later corrected. SledgeKey anchors each backtest observation to the date the filing became public, so historical EBITDA-based screens reflect what an investor could have actually traded on then.

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