How it Works
The calculation works backward from Net Income or forward from Operating Income.
Formula:
$ EBITDA = \text{Net Income} + \text{Interest} + \text{Taxes} + \text{Depreciation} + \text{Amortization} $
Alternatively:
$ EBITDA = \text{Operating Income (EBIT)} + \text{Depreciation} + \text{Amortization} $
What is EBITDA Calculator: Operational Profitability?
EBITDA is a widely used measure of a company's operating performance. By stripping away non-operating expenses like interest, taxes, and non-cash accounting charges (depreciation and amortization), it provides a clearer view of core profitability and cash flow potential. It is frequently used in valuation ratios (like EV/EBITDA) and by lenders to gauge debt-service capability.
Step-by-Step Guide
- Start with Net Income – Locate the bottom-line profit on the Income Statement.
- Add Back Interest & Taxes – These reflect financing and tax environments, not operations.
- Add Back D&A – Add Depreciation and Amortization found on the Cash Flow Statement.
- Calculate – Sum these figures to find EBITDA.
Example
Input: Net Income $50k, Int $2k, Tax $5k, D&A $4k
Result: $61,000 EBITDA
FAQ
Is EBITDA the same as Gross Profit?
No. Gross Profit only subtracts COGS. EBITDA subtracts operating expenses (SG&A) but adds back D&A.
Why add back Depreciation?
Depreciation is a non-cash expense. It lowers accounting profit but doesn't drain actual cash in the current period.
EBITDA vs EBIT?
EBIT includes depreciation and amortization; EBITDA excludes them, making EBITDA higher.
Is a high EBITDA good?
Generally yes, it indicates strong operational efficiency.
Can EBITDA be negative?
Yes, this indicates the core business operations are losing money.
⚠️ Important: Financial figures generated here are for planning purposes. Actual results may vary based on market conditions and individual circumstances.
Conclusion
While EBITDA is an excellent proxy for operating cash flow, it is not a perfect measure. It ignores the cost of capital expenditures (CapEx) required to maintain the business. Always analyze EBITDA alongside Free Cash Flow for a complete picture.