Adjusted EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortisation. A widely used measure of a company's core operating performance that strips out financing decisions, tax jurisdictions, and non-cash charges, making it useful for comparing profitability across companies.

EBITDA expressed as a percentage of revenue, indicating how much operating profit a company generates from each pound of revenue before non-cash charges and financing costs. EBITDA margin is a key benchmark for operational efficiency across industries.

Earnings adjusted to remove non-recurring, unusual, or non-operating items to present a sustainable level of profitability. Normalisation adjustments commonly include removing one-off restructuring charges, litigation settlements, above- or below-market executive compensation, and related-party transactions.

A valuation approach that estimates the value of a business by adjusting the book values of all assets and liabilities to their fair values, including the recognition of off-balance-sheet intangible assets that meet IFRS 3 or ASC 805 recognition criteria. The adjusted net asset method is primarily used for asset-holding companies, investment vehicles, and businesses where value resides primarily in the asset base rather than earnings capacity.

Cash flow adjusted to remove non-recurring, extraordinary, or owner-specific items to reflect the sustainable earnings capacity of a business under normal operating conditions. Normalisation adjustments commonly include removing one-time restructuring charges, above-market owner compensation, related-party transactions, and non-operating income.

A detailed financial analysis, typically prepared by an accounting firm on behalf of a buyer or lender, that assesses the sustainability, accuracy, and adjustability of a target company's reported earnings. A QoE report examines revenue recognition policies, non-recurring items, related-party transactions, working capital normalisation, pro forma adjustments, and the bridge from reported EBITDA to adjusted EBITDA.

A valuation ratio comparing a company's enterprise value to its EBITDA. EV/EBITDA is one of the most commonly used multiples for comparing valuations across companies, controlling for differences in capital structure, taxation, and depreciation policies.

An actuarial valuation methodology used to value life insurance companies, representing the present value of future profits from the existing book of insurance policies (the value of in-force business) plus the adjusted net asset value of the company. Embedded value is the standard valuation framework for life insurers and is analogous to the net asset value plus intangible asset value approach used in other industries.

What is EBITDA and why does it matter for valuation?

EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortisation) strips out financing and accounting decisions to show a company's core operational profitability — it's the most common valuation metric in M&A.

How is the Rule of 40 calculated and when does it apply?

The Rule of 40 states that a healthy SaaS company's revenue growth rate plus profit margin should exceed 40% — it applies primarily to SaaS companies at scale and is used by investors to assess growth-profitability balance.