E.B.I.T.D.A.
Earnings before Interest, Taxes, Depreciation & Amortization
Private & Confidential Valuation Reference Model
Business & Property Valuation Based on E.B.I.T.D.A.
A practical valuation guide showing how return on investment, price/earnings ratios, required E.B.I.T.D.A. and payback periods interact across different business and property risk profiles.
ROI-Based Valuation
Price/Earnings Ratio
Illustrative Investment: R1 000 000
Core Definitions
The model compares the required earnings of a business or property investment against the intended purchase price.
E.B.I.T.D.A. excludes
Owner’s remuneration, a manager who manages / operates the business on behalf of the owner, and loan repayments.
R.O.I.
Return on Investment
P/E
Price Earnings Ratio
Purchase Price
Inclusive of consultant remuneration and all business assets. It may include stock, debtors and creditors.
Factors Affecting Valuation
The appropriate valuation multiple is influenced by risk, operational complexity, growth potential and the nature of the asset being acquired.
Operational and Market Factors
- Very easy or difficult operation
- High barriers to entry
- Growth prospects
- Franchised or non-franchised operation
- High or low levels of risk
Purchase Price Considerations
- Consultant remuneration may be included in the purchase price.
- The purchase price normally includes the business assets.
- The purchase price may include stock, debtors and creditors, depending on the transaction structure.
- Stock treatment must be clarified upfront, as fast-moving and slow-moving stock may be treated differently.
Lower risk generally supports a lower ROI and a higher P/E multiple.
Conversely, businesses with higher risk, lower barriers to entry or greater owner-dependence normally require a higher ROI to compensate the purchaser for the additional risk assumed.
Actual Valuation Table
Extracted from the revised model supplied, based on an illustrative investment value of R1 000 000.
| Category / Examples | Risk / Profitability Profile | ROI & P/E | Investment | E.B.I.T.D.A. | Payback |
|---|---|---|---|---|---|
| BUSINESS ONLY (High Risk)Restaurants, Coffee Shops, Bars, Clubs | Profitable with growth potential but very high risk | ROI 50% or P/E 2.0 | R1 000 000 | R500 000 | 2 years |
| BUSINESS (Category Medium Risk)Manufacturing & Private Retail | Profitable / Medium Risk | ROI 40% or P/E 2.5 | R1 000 000 | R400 000 | 2.5 years |
| BUSINESS (Category Low Risk)Petrol Station & Franchised operations | Profitable & low risk | ROI 30% or P/E 3.3 | R1 000 000 | R300 000 | 3.3 years |
| BUSINESS (Category Super)Super business, extremely high barriers to entry | Low risk, profitable, growth potential | ROI 25% or P/E 4 | R1 000 000 | R250 000 | 4.0 years |
| PROPERTY & BUSINESSCommercial / Industrial / Storage. Bought and operated by owner. | Varies with type of business | ROI 10%–16% or P/E 10–6.25 | R1 000 000 | R100 000 to R160 000 | 6.25 to 10 years |
| PROPERTY ONLYCommercial / Industrial / Residential — bought and rented out | Low Risk & Low Reward | ROI 10% or P/E 10 | R1 000 000 | R100 000 | 10 years |
| PROPERTY ONLYResidential — occupy self; just a liability | Least profitable / Very low riskJust an expense — no profit | ROI 1% or P/E 30 | R1 000 000 | minus R120 000 | 30 years |
InterpretationThe same R1 000 000 investment requires a much higher earnings yield for a high-risk trading business than for a lower-risk property-backed investment.
Practical UseThis model is a valuation guide only. The final valuation should consider the actual trading history, risk profile, lease position, asset base, franchise structure, sustainability of earnings and due diligence outcome.
E.B.I.T.D.A. and Stock Treatment
Important transaction notes extracted from the revised valuation model.
E.B.I.T.D.A. Is Expressed Before
- Owner’s remuneration
- Manager remuneration where a manager operates the business on behalf of the owner
- Interest, taxation, depreciation and amortisation
- Loan repayments
Stock Treatment
- Fast-moving stock is treated as an addition to the purchase price. Petrol stations and supermarkets fall under this category.
- Slow-moving stock is inclusive in the purchase price, although in some cases an agreed level of stock forms part of the purchase price and the remainder is payable as an addition.
Contact Details
For further information, purchaser qualification, confidential enquiries or discussion regarding the application of this valuation model, please contact Entrust Business Consultants.
Entrust Business Consultants | Private & Confidential | E.B.I.T.D.A. Valuation Reference Model | Updated 27 June 2026
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