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The Magic Number is 10%.

What I’m referring to is EBITDA as 10% of Sales.

EBITDA – Earnings before interest, taxes, depreciation and amortization. This is also the best proxy for operating cash earned over a period of time.

10% is the magic number in two ways –

(1) 10% is thought as a minimum EBITDA for a business to be marketable. When a PE firm turns around an underperforming business, 10% is the time to start marketing the business.

(2) This should be a minimum bar for any performing business and if you’re falling below this number, you’ve got a problem to solve.

10% - EBITDA as % of Sales

By the way, we’re talking about the company EBITDA, not a 4-Wall EBITDA (this deserves anther post of it own..).

10% is universal, all things equal. Every industry deserves its own evaluation and the number might go higher, not lower!

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