EBITDA

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation. It measures a company's operating cash generation by removing the impact of capital structure (interest), tax jurisdiction (taxes), and accounting methods (depreciation and amortisation).

For early-stage investors, EBITDA matters because it isolates operational performance from financing and accounting decisions. A startup burning cash but showing positive EBITDA indicates the core business generates cash—even if net profit is negative due to debt servicing or large one-time write-downs.

EBITDA is not a statutory metric under Indian GAAP or Ind-AS, but it's widely used by VCs, PE funds, and acquirers to compare businesses across sectors and geographies. Series B+ investors typically demand EBITDA visibility by year 3–4. It helps normalise comparisons between a bootstrapped founder and a debt-heavy competitor.

A key limitation: EBITDA ignores capital expenditure, working capital needs, and cash taxes—a startup reporting positive EBITDA may still face a cash crisis if capex is high or receivables stretch long.

Under Ind-AS 8, Indian startups are required to report net profit, not EBITDA. However, Schedule VI of the Companies Act requires disclosure of depreciation and finance costs separately, making EBITDA easy to calculate. Most Series A+ fundraising decks in India include EBITDA projections, even though statutory filings prioritise PAT (Profit After Tax).

VCs funding Indian startups often target EBITDA-positive by Series C to reduce dilution in later rounds. High-growth SaaS companies like Freshworks and Zoho have historically achieved 20–30% EBITDA margins by year 5–6, which became the benchmark for India-based B2B software startups. E-commerce and logistics operators, meanwhile, run EBITDA-negative for years—Flipkart and Amazon India operated at losses while growing GMV, reflecting sector norms.

Tax planning matters: depreciation benefits under Section 32 of the Income Tax Act reduce taxable income, which inflates EBITDA relative to PAT. Startups claiming weighted deduction (100% under certain conditions) show even wider EBITDA–PAT gaps, which savvy investors account for.