EBITDA

EBITDA stands for earnings before interest, taxes, depreciation, and amortization, and it measures how much cash a business generates from its core operations before accounting for how it is financed, how it is taxed, or how it handles accounting for equipment and intangible assets. Mid-market DTC brands with $10 to $50 million in revenue see median EBITDA margins of 7 to 8%, which means a brand doing $20 million in revenue keeps roughly $1.4 to $1.6 million in operating cash before debt payments and taxes.

How It Works

What it strips out

EBITDA removes four categories of costs that vary based on a company’s financial structure rather than its operations. Interest depends on how much debt the company carries. Taxes depend on jurisdiction and accounting strategy. Depreciation and amortization are non-cash charges that spread the cost of equipment and acquisitions over multiple years. By removing all four, EBITDA shows what the business itself produces in cash, regardless of those external factors, which is why investors and acquirers prefer it over net income for comparing companies.

Why acquirers care about it

When a company is acquired, the buyer typically values it as a multiple of EBITDA. A beauty brand with $5 million in annual EBITDA that sells at 10x EBITDA would command a $50 million price. A brand with higher EBITDA margins commands a higher multiple because the buyer is purchasing a more efficient cash-generating machine. This is why EBITDA margin matters more than revenue when a founder is thinking about an eventual exit: two brands with $20 million in revenue will sell for very different prices if one has a 15% EBITDA margin and the other has 5%.

The limitations

EBITDA is not a perfect measure. It ignores real costs like capital expenditures (buying equipment, building stores) and working capital needs (inventory, accounts receivable), which means a company with strong EBITDA can still be cash-poor if it needs to reinvest heavily. Some investors call EBITDA “earnings before I tricked the dumb auditor” because it can make unprofitable companies look healthy by excluding legitimate expenses.

Real Example

Kylie Cosmetics achieved EBITDA margins exceeding 25% on roughly $400 million in revenue, making it one of the most cash-efficient beauty brands in history. The 25% EBITDA margin meant roughly $100 million in operating cash on $400 million in revenue, driven by 12 employees, outsourced manufacturing, and marketing powered almost entirely by Kylie Jenner’s social media following. When Coty acquired 51% for $600 million, the EBITDA margin was central to the valuation.

Go Deeper

• Margins and Profitability: How EBITDA fits within the full margin stack from gross to net.
• Valuation: How EBITDA multiples determine what a company is worth.
• Acquisitions and Exits: How acquirers use EBITDA to set acquisition prices.

Frequently Asked Questions

What is EBITDA in simple terms?

EBITDA is the cash a business generates from its day-to-day operations before paying for debt, taxes, and accounting adjustments. Think of it as the answer to: “If this business had no loans, no tax obligations, and no accounting complexity, how much money would it produce?” It is the number that acquirers and investors use to compare businesses and determine what they are worth.

What is a good EBITDA margin?

For mid-market DTC consumer brands ($10 to $50 million revenue), the median EBITDA margin is 7 to 8%. Investors typically want to see 15 to 25% for mature businesses. SaaS companies target 20 to 30%. Kylie Cosmetics achieved 25%+, which is exceptional for a consumer brand. Below 5% means the business barely generates operating cash.

What is the difference between EBITDA and net profit?

EBITDA excludes interest, taxes, depreciation, and amortization, while net profit includes all of them. EBITDA shows operational cash generation. Net profit shows what is actually left after every obligation. A company can have strong EBITDA and negative net profit if it carries significant debt (high interest payments) or has large non-cash charges from past acquisitions.

How is EBITDA used to value a business?

Acquirers multiply annual EBITDA by a factor (the “EBITDA multiple”) to estimate the company’s value. Beauty brands typically sell for 8 to 15x EBITDA. A brand with $5 million in EBITDA at a 10x multiple would be valued at $50 million. Higher growth rates and margins command higher multiples.

Sources

• Yotpo, “2026 DTC Brand Comparison”. EBITDA margin compression data for mid-market DTC brands.
• Harvard Business School, “Margin Ratios,” 2024. EBITDA definition and relationship to other margin measures.
• Corporate Finance Institute, “Profit Margin”. EBITDA calculation methodology and limitations.