London: +44 (0)20 7236 2601
St Albans: +44 (0)1727 869141
Rickmansworth: +44 (0) 1923 771010
Milton Keynes: +44 (0)1908 605552

What profit measure should I use?

Is it just me or are transactions becoming more and more leveraged? Lenders appear to be have a better appetite for lending compared to when I started in the profession. I think this is a positive change, as very few transactions I have been involved in have gone awry (it must be the excellent Due Diligence advice…..).

However could it be that lenders are misinterpreting the profit calculations? The shift in profit measures from EBT (Earnings Before Tax), EBIT (Earnings Before Interest & Tax) and EBITDA (Earnings Before Interest, Tax, Depreciation & Amortisation) have meant that the basis for earnings has increased. Could it be that the increase in the profit measure has meant that lenders continue to use the same multiple, while simultaneously providing more finance??

PS to all the bankers I deal with – only joking.

 

 

Date: 30th April, 2007
Author: Gary Farnes

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