In this guide
- EBITDA = net profit + tax + interest + depreciation + amortisation.
- Buyers price on normalised EBITDA: market pay for the owner, market rent and no one-off items.
- EBITDA margin, EBITDA divided by revenue, shows how much of each dollar of sales becomes operating profit.
- If your accounts follow SFRS(I) 16 or FRS 116, rent sits below EBITDA. Buyers deduct it back.
- Value is roughly normalised EBITDA times a multiple, less debt, plus surplus cash.
EBITDA in one sentence
EBITDA is the profit your business makes from running its operations, before interest on borrowing, tax, depreciation of equipment and fit-out, and amortisation of intangible assets.
Buyers like it because it lets them compare businesses on equal terms. Two clinics with the same patients and costs can report very different net profits because one has a bank loan, one renovated last year, or one has a different tax position. EBITDA strips those differences out, so a buyer can see what the operation itself earns, then decide how they would finance and run it.
How to calculate EBITDA from your accounts
Start from net profit after tax and add back the four items:
EBITDA = net profit + income tax + interest + depreciation + amortisation
Or start from operating profit (EBIT) and add depreciation and amortisation. Both routes should give the same answer. An illustrative example:
| Item | S$ |
|---|---|
| Revenue | 4,000,000 |
| Net profit after tax | 420,000 |
| Add: income tax | 86,000 |
| Add: interest on a bank loan | 24,000 |
| Add: depreciation of fit-out and equipment | 150,000 |
| Add: amortisation of software | 20,000 |
| EBITDA | 700,000 |
| EBITDA margin (700,000 ÷ 4,000,000) | 17.5% |
You will find each figure in the profit and loss statement and the notes to your financial statements.
EBITDA margin
EBITDA margin is EBITDA divided by revenue. In the example above, 17.5% of every dollar of sales becomes operating profit before depreciation.
Margins vary widely by sector. A capital-light services firm will usually show a higher margin than a restaurant, which carries rent, food costs and a large team. What buyers look for is how your margin compares with similar businesses, and whether it is steady or improving over three years. A margin that has fallen sharply raises questions, and a margin far above your peers will be checked closely for missing costs.
EBITDA, EBIT, net profit and cash
| Measure | What it takes off revenue | What buyers use it for |
|---|---|---|
| EBITDA | Operating costs only | Comparing businesses and setting the price multiple |
| EBIT (operating profit) | Operating costs and depreciation | Asset-heavy businesses, where equipment wears out and must be replaced |
| Net profit | Everything, including interest and tax | What the current owner actually earned |
| Free cash flow | Operating costs, tax, new equipment and working capital | Whether the business can repay acquisition debt |
EBITDA is not cash. A business that must spend heavily on new equipment every year, or that needs more stock and debtors as it grows, turns less of its EBITDA into cash. Buyers check this, and it affects the multiple they will pay.
Normalised EBITDA and add-backs
Your accounts show the business as you run it. A buyer prices it as they would run it. Normalised EBITDA, sometimes called adjusted EBITDA, makes the adjustment:
- Owner’s pay is replaced with the market cost of the roles you fill.
- Rent paid to a related party is replaced with a market rent.
- One-off items, such as an insurance payout, a legal settlement or a one-off government grant, are removed.
- Personal costs run through the company are added back, if you can document them.
| Item | S$ |
|---|---|
| Reported EBITDA | 700,000 |
| Owner paid 80,000; market cost of a general manager 180,000 | less 100,000 |
| One-off government grant | less 40,000 |
| Owner’s personal car and travel, documented | plus 30,000 |
| Normalised EBITDA | 590,000 |
Adjustments can move the figure either way. Our guide to how SMEs are valued covers which add-backs buyers accept and which they question.
Lease accounting: why your EBITDA may look higher than buyers will accept
Since 2019, companies reporting under SFRS(I) 16 or FRS 116 record most leases as an asset and a liability. Rent no longer appears as an operating cost. It is replaced by depreciation and interest, both of which sit below EBITDA. So reported EBITDA goes up, even though nothing about the business has changed.
Buyers of owner-operated businesses usually deduct the rent back, because a new owner still has to pay it. This matters most for businesses with large leases, such as F&B outlets, clinics, gyms and retail. If your accounts show EBITDA after this change, prepare a version with rent deducted so the buyer’s figure does not come as a surprise. Smaller companies that report under SFRS for Small Entities generally still treat rent as an operating cost.
From EBITDA to a price
Buyers turn normalised EBITDA into a price in two steps:
- Enterprise value = normalised EBITDA × a multiple. For owner-operated Singapore SMEs with about S$0.3m to S$3m of normalised EBITDA, multiples are typically 2x to 5x. Smaller businesses are usually priced on owner’s earnings instead, at about 1x to 3x.
- Equity value, what you receive, = enterprise value, less debt, plus surplus cash, adjusted for working capital.
Using the example above: 590,000 × 4 = 2,360,000 enterprise value. Less a bank loan of 300,000, plus surplus cash of 200,000, gives an equity value of 2,260,000 before any working capital adjustment.
See the multiples by industry on our Singapore SME valuation multiples page, try your own figures in the valuation calculator, and read how the equity bridge works in our guide to working capital and net debt.
Common EBITDA mistakes owners make
- Counting government grants and one-off income as recurring profit.
- Leaving the owner’s below-market salary in place, which overstates profit.
- Adding back costs without documents to support them.
- Pricing on the single best year instead of a three-year trend.
- Quoting EBITDA after lease accounting without deducting rent.
- Treating EBITDA as cash, and forgetting the equipment the business must keep buying.
Each of these tends to surface in due diligence, where it costs price and trust. Fixing them before you speak to a buyer is part of preparing your business for sale.
Questions owners ask
What is a good EBITDA multiple for a small business in Singapore?
Clearmere’s indicative ranges put most owner-operated Singapore SMEs with about S$0.3m to S$3m of normalised EBITDA at roughly 2x to 5x that figure. Where a business sits in the range depends on its size, how much it relies on the owner, how recurring its revenue is, customer concentration and growth. Below about S$300,000 of EBITDA, buyers usually price on owner’s earnings at about 1x to 3x.
Is EBITDA the same as profit?
No. EBITDA is profit before interest, tax, depreciation and amortisation, so it is higher than net profit. It shows what the operations earn before financing, tax and asset wear, which is why buyers use it to compare businesses. It is not the same as cash either, because tax, new equipment and working capital still have to be paid for.
How do you calculate EBITDA margin?
Divide EBITDA by revenue and express it as a percentage. A business with S$700,000 of EBITDA on S$4m of revenue has an EBITDA margin of 17.5%. Compare it with similar businesses and look at the three-year trend, rather than reading it on its own.
What is adjusted or normalised EBITDA?
It is EBITDA restated to show what the business would earn under a new owner: the owner’s pay replaced with a market salary, related-party rent at market rates, one-off items removed and documented personal costs added back. Buyers apply the price multiple to normalised EBITDA, not to the figure in your accounts.