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Business Valuation

Average historic EBITDA

A weighted average of historic EBITDA used to estimate business value

Business Valuation

In Summary

Recent historical earnings are typically averaged as part of normalizing EBITDA when estimating business valuation in client financial plans.

RISR estimates average historical EBITDA by taking a weighted average of the most recent three years of earnings, weighting recent years more than former years.

Estimating average historic EBITDA to inform valuations

Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a measure of a company's operating profitability. In financial planning with business owners, it's a key component of estimating normalized EBITDA, which is used in business valuation.

Taking a weighted average of recent historic EBITDA helps reflect the business's current ability to generate earnings, signals the trajectory of the business, and helps smooth out any impacts from one-off events that may have impacted earnings.

Estimating EBITDA

EBITDA = Net Income + Interest expense + Depreciation + Amortization

Estimating Average Historic EBITDA

Avg. Historic EBITDA = [(EBITDA Year 1 x 3) + (EBITDA Year 2 x 2) + (EBITDA Year 3 x 1)] / 6

(Where Year 1 = the most recent year)

Frequently Asked Questions