Malcolm in the Middle: The Never-Ending Love–Hate With EBITDA

Yes, this is one of those posts on EBITDA...

Some financial professionals love it. Others hate it.
Both camps make compelling points.

Here’s mine.

I’m an EBITDA enthusiast — and here’s why.

By design, EBITDA is synthetic cash – a quick and dirty way to simulate cash flow without the need for complex accounting. While EBITDA is not cash, and while it’s not strictly governed by GAAP (a non-GAAP metric), it is obviously adjustable.

And that’s exactly what makes it powerful.

Some finance folks hate the word “adjustments.”
And when paired with EBITDA, it becomes their least favorite combo: EBITDA Adjustments.

Well, I beg to differ.

From my side of the table — the deal side — I love adjustments.

If you’re trying to understand a business, assess its value, or build a hockey stick…
Adjustments are the engine that drives the due diligence cart forward — not the brakes.

Why EBITDA Matters (Like It or Not)

EBITDA is the universal language of valuation.
It allows us to compare one company to another, across:

• Size

• Industry

• Geography

• Maturity

Try doing that with topline, bottom line, or cash. You won’t get far.

Yes, cash is king. You can touch it.
But cash lacks granularity — it doesn’t generate insight the way EBITDA does.

Let me break it down:

• EBITDA per employee? ✔ Valid performance metric

• Cash per employee? ❌ Not useful

• EBITDA per metric tonne or per square foot? ✔ Useful

• Cash per tonne or square foot? ❌ Come on

That’s why Enterprise Value per EBITDA is a global standard — not EV per Cash.
It’s the EBITDA multiple that makes EBITDA so potent and popular.

But What About Revenue or Net Profit?

Good question. But both sit at the extreme ends of the P&L.

• Revenue (Topline) ignores the engine room of business — high above COGS and OPEX.
  You can be losing money and still expect value.

• Net Profit (Bottomline) is too narrow — shaped by capital structure, taxes, and one-off items.
  It reflects what happened, not what could have happened.

And keep this in mind:
Dealmaking is negotiation. And EBITDA offers that grey zone — that wiggle room.

What fun would a negotiation be if it were based purely on a fixed topline or audited bottom line?

Malcolm in the Middle (and the Value of Adjustments)

Just like Malcolm, EBITDA is stuck in the middle and still, somehow, popular.
And just like Malcolm, no matter how chaotic things get, he ends up fixing the mess (read: adjustments).

EBITDA is where the business fun happens — and exactly where the value creation story lives.

I would even go further and say:

“The entire private equity industry would be miserable without its EBITDA.”

So if you're an accountant at heart, I get it.
You like cash. You trust cash.
You look at EBITDA and feel uneasy.

But it remains essential for understanding business growth and valuation discipline.

Final Thought

If you truly have a better alternative to EBITDA…
then please, blog about it.

But if not?

Adjust. Compare. Move on.

#PrivateEquity #EBITDA #Valuation #DealMaking #AdjustedEBITDA #FinanceStrategy #VCIInstitute #MohamadChahine