EBITDA Calculator
Calculate EBITDA — Earnings Before Interest, Taxes, Depreciation, and Amortization. EBITDA is a widely used measure of operating profitability that strips out financing, tax, and accounting decisions to show the underlying cash-generating power of the business.
What Is EBITDA?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It measures the operating profitability of a business before the effects of financing (interest), government (taxes), and accounting (depreciation and amortization) decisions.
EBITDA is widely used in valuation, M&A, and leveraged finance because it approximates the operating cash flow of a business before capital structure and non-cash charges. Two companies with the same EBITDA but different debt levels or tax situations have the same operating profitability — EBITDA makes them directly comparable.
EBITDA Formula
Bottom-up from net income:
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
Top-down from revenue:
EBITDA = Revenue − COGS − Operating Expenses
From EBIT:
EBITDA = EBIT + Depreciation + Amortization
EBITDA margin = EBITDA ÷ Revenue × 100. It shows how many cents of EBITDA the business generates per dollar of sales.
Note: since EBITDA excludes depreciation and amortization, it is higher than EBIT. The gap between EBITDA and net income is the sum of interest, taxes, depreciation, and amortization — for the default case, $15,000 + $25,000 + $20,000 + $10,000 = $70,000.
Worked Example
A business has $500,000 revenue, $300,000 COGS, $100,000 operating expenses, $20,000 depreciation, $10,000 amortization, $15,000 interest, $25,000 tax:
Gross profit = $500,000 − $300,000 = $200,000
EBIT = $200,000 − $100,000 = $100,000
EBITDA = $100,000 + $20,000 + $10,000 = $130,000
EBITDA margin = $130,000 ÷ $500,000 = 26.00%
Net income = $100,000 − $15,000 − $25,000 = $60,000
EBITDA-to-interest coverage = $130,000 ÷ $15,000 = 8.67×
Interpretation: the business generates $130,000 in operating EBITDA and can cover its interest expense 8.67 times over — a very healthy debt-service cushion.
Why EBITDA Is Used (and Abused)
Why analysts use EBITDA:
- Compares operating profitability of companies with different capital structures
- Neutralizes differences in tax jurisdictions
- Removes non-cash accounting charges (D&A) that can distort comparison
- Used in valuation multiples (EV/EBITDA) and debt covenants
Why EBITDA is criticised:
- Ignores real cash costs — depreciation represents actual spending on equipment, even if it does not hit the bank account this period
- Ignores working capital changes — a company can show strong EBITDA while burning cash
- Can be manipulated — different companies capitalize different expenses, making comparisons unreliable
- Warren Buffett famously said: "Does management think the tooth fairy pays for capital expenditures?"
EBITDA is a useful screening metric but should never be used alone. Combine it with free cash flow, net income, and cash flow from operations for a complete picture.
Frequently Asked Questions
What is a good EBITDA margin?
It varies widely by industry. Software and services: 20–40%. Manufacturing: 10–20%. Retail and grocery: 5–10%. Construction: 5–8%. Utilities: 25–35%. A margin above your industry average is good; below is a warning. Consistent margin improvement over time is more important than the absolute number.
What is the difference between EBITDA and cash flow?
EBITDA is an accounting profit measure that adds back non-cash charges. Operating cash flow is the actual cash the business generates. The difference: EBITDA ignores interest paid, taxes paid, and working capital changes — all of which use real cash. A business with high EBITDA but growing receivables or inventory can have weak cash flow. Always check both.
Why add back depreciation and amortization?
Depreciation and amortization are non-cash expenses — they spread the cost of an asset over its useful life, but no cash leaves the business in the current period. Adding them back to EBIT gives a figure closer to the operating cash profitability. However, the assets still need to be replaced eventually, which is why some analysts subtract capital expenditures from EBITDA to get a more realistic "cash EBITDA."
What is a good EBITDA-to-interest ratio?
The interest coverage ratio is EBITDA ÷ Interest Expense. Above 5× is healthy; above 8× is strong; above 10× is very safe. Below 3× is a warning sign — the business is vulnerable to a decline in EBITDA or a rise in interest rates. Below 1.5× is danger territory. Lenders often require 2× or higher as a loan covenant.
Is EBITDA the same as operating profit?
No. Operating profit (EBIT) = EBITDA − Depreciation − Amortization. EBITDA is always equal to or higher than EBIT. Some companies present "adjusted EBITDA" that also excludes stock-based compensation, restructuring costs, and other one-time items — this adjusted figure is even further from standard operating profit and should be treated with skepticism.
Why is EBITDA used in valuation multiples?
EV/EBITDA is a popular valuation multiple because it is capital-structure neutral (interest is added back) and tax-neutral (taxes are added back). It allows comparison across companies with different debt levels and tax positions. It is widely used in M&A and private equity. But it is less useful for capital-intensive industries where D&A is a large and real cost — for those, EV/EBIT or EV/Free Cash Flow is more appropriate.