EBITDA in Australia 2025: What It Means for Business Valuation

EBITDA—short for Earnings Before Interest, Taxes, Depreciation and Amortization—has become a buzzword in boardrooms and a staple in business valuation across Australia. But what does this number actually tell you? In a landscape shaped by ongoing economic shifts, stricter lending criteria, and evolving tax rules, understanding EBITDA in 2025 is more important than ever for owners, investors, and lenders alike.

What Is EBITDA and Why Is It Used?

EBITDA is a financial metric that calculates a company’s operating performance by stripping out the effects of financing decisions (interest), government policy (taxes), and non-cash accounting items (depreciation and amortization). The formula looks like this:

• EBITDA = Net Profit + Interest + Taxes + Depreciation + Amortization

This approach allows analysts and business owners to focus on the core profitability of the business, independent of capital structure and accounting estimates. In practical terms, EBITDA is often used to:

• Compare companies of different sizes or capital structures

• Assess a business’s ability to generate cash from operations

• Determine lending eligibility and loan covenants

• Value businesses for acquisition or sale

For example, a Sydney-based manufacturer may have heavy equipment that results in significant depreciation expenses. EBITDA can help show the underlying performance by adding back these non-cash charges, offering a clearer view of operational health.

EBITDA in 2025: Policy Changes and Lending Impacts

This year, EBITDA remains a favourite metric for both lenders and investors, but there have been some notable shifts. The Australian Prudential Regulation Authority (APRA) continues to tighten lending standards in response to global volatility, with many banks now using EBITDA-based measures as the foundation for debt service coverage ratios (DSCR).

Key 2025 updates affecting EBITDA in Australia:

• APRA guidance now explicitly references EBITDA in risk assessments for commercial loans, particularly for SMEs and mid-market borrowers.

• ATO scrutiny on non-standard EBITDA adjustments (so-called “add-backs”) has increased, especially where private businesses attempt to inflate operating results for loan or sale purposes.

• Private equity and M&A activity is rebounding, with EBITDA multiples being a primary negotiation point in business sales across sectors like healthcare, technology, and renewable energy.

Lenders are particularly cautious about “normalising” EBITDA by adding back one-off or discretionary expenses. For example, an owner’s unusually high salary or a pandemic-related rent concession may or may not be accepted as a valid adjustment in 2025’s stricter lending environment.

EBITDA in Practice: Real-World Examples

Let’s look at how EBITDA is used in day-to-day business analysis in 2025:

• Business Sale: A Melbourne-based tech startup is being acquired. Both buyer and seller agree to use a 7x EBITDA multiple to determine the purchase price, but negotiate fiercely over which expenses can be “added back” to EBITDA—legal settlements, founder bonuses, and R&D grants are all on the table.

• Bank Lending: An agribusiness seeks a $2 million expansion loan. The lender requests audited financials and calculates EBITDA to ensure the business generates enough cash flow to service the new debt. Only recurring, operational profits are counted; any non-operating or one-off items are excluded by the bank.

• Investor Analysis: A group of investors reviews two competing franchises. One shows higher net profit, but once depreciation is added back, the other franchise’s EBITDA reveals stronger core profitability, swaying the investment decision.

It’s clear: EBITDA is a powerful tool, but it’s only as reliable as the numbers and assumptions behind it. Transparency is key, and 2025’s regulatory climate means Australian businesses must be more rigorous than ever when presenting their EBITDA figures.

Limitations and Alternatives: Reading EBITDA with a Critical Eye

While EBITDA is invaluable for comparing operational performance, it isn’t a substitute for full financial analysis. It ignores changes in working capital, capital expenditure requirements, and can mask problems for asset-heavy or highly leveraged companies. In 2025, analysts are increasingly pairing EBITDA with other measures, such as:

• EBIT (Earnings Before Interest and Taxes): Focuses on operating profit without the non-cash add-backs.

• Free Cash Flow: Shows actual cash available after all expenses, including capital expenditures.

• Net Profit: The bottom line, after all costs and taxes.

With APRA’s focus on sustainable debt levels and the ATO’s crackdown on creative accounting, businesses are wise to present their numbers accurately and be prepared to justify any adjustments to EBITDA.