What does 10X EBITDA mean?

10X EBITDA refers to a company's earnings before interest, taxes, depreciation, and amortization (EBITDA) multiplied by 10. It is a valuation metric investors and analysts use the calculator to evaluate and compare companies, especially for acquisition purposes.

The 10X multiple stems from the belief that a healthy company's valuation should be around 10 times its annual EBITDA. So, if a company has an EBITDA of ₹10 crore, its valuation could be considered around ₹100 crore.

The 10X EBITDA rule provides a quick way to benchmark a company's value. It helps buyers come up with a reasonable price to pay for acquiring a target company. And it helps sellers set an appropriate asking price to maximize their sale value.

However, 10X EBITDA should not be viewed as a precise valuation method. It is a general guideline that works for some industries, such as software services. However, valuations can vary significantly based on a company's growth prospects, competition, industry dynamics, and other qualitative factors. The right multiple depends on the specifics of each case. But 10X EBITDA serves as a widely used starting point for negotiations.