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EBITDA is often used in financialanalysis and business valuation because it provides a more standardized and consistent measure of a company's operating performance, especially when comparing companies with different capital structures or when assessing their ability to generate cash from operations.
To illustrate, consider a practice in valuation, where analysts are trained to add a small cap premium to discount rates for smaller companies, on the intuition that they are riskier than larger companies. It is very likely that these rules of thumb were developed from data and observation, but at a different point in time.
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