Calculating Ebitda

EBITDA Calculator

Calculation Results:

EBITDA:

EBITDA Margin:

EBITDA measures your business's core operational profitability by stripping away non-operating and non-cash expenses.

function calculateEBITDA() { var netIncome = parseFloat(document.getElementById('netIncome').value) || 0; var revenue = parseFloat(document.getElementById('totalRevenue').value) || 0; var interest = parseFloat(document.getElementById('interestExp').value) || 0; var taxes = parseFloat(document.getElementById('taxesExp').value) || 0; var depreciation = parseFloat(document.getElementById('depreciationExp').value) || 0; var amortization = parseFloat(document.getElementById('amortizationExp').value) || 0; var ebitda = netIncome + interest + taxes + depreciation + amortization; var margin = (revenue > 0) ? (ebitda / revenue) * 100 : 0; document.getElementById('ebitdaValue').innerText = '$' + ebitda.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('ebitdaMargin').innerText = margin.toFixed(2) + '%'; document.getElementById('ebitdaResultBox').style.display = 'block'; }

EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, is one of the most widely used financial metrics in business valuation and investment analysis. It allows analysts to compare the profitability of different companies while eliminating the effects of financing decisions, accounting methods, and tax jurisdictions.

How to Calculate EBITDA

There are two primary ways to calculate EBITDA. The most common method, used in the calculator above, starts with Net Income and adds back the non-operating and non-cash expenses.

EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization

Breaking Down the Components:

• Net Income: The "bottom line" profit after all expenses have been deducted from revenue.
• Interest: The cost of debt. By adding this back, we can evaluate a company regardless of its capital structure (debt vs. equity).
• Taxes: Tax rates vary by region. Adding them back allows for a direct comparison of operating efficiency.
• Depreciation: A non-cash expense representing the wear and tear on tangible assets like machinery or vehicles.
• Amortization: Similar to depreciation, but for intangible assets like patents or copyrights.

Practical Example

Imagine a tech startup, "Alpha Systems," with the following annual financial figures:

• Net Income: $250,000
• Interest Paid: $15,000
• Taxes: $50,000
• Depreciation: $30,000
• Amortization: $5,000

Using the formula: $250,000 + $15,000 + $50,000 + $30,000 + $5,000 = $350,000 EBITDA.

If Alpha Systems had $1,000,000 in revenue, their EBITDA Margin would be 35% ($350k / $1M), indicating a highly efficient core operation.

Why is EBITDA Important?

Investors and business owners use EBITDA for several reasons:

1. Valuation Multiples: Many companies are bought and sold based on an "EBITDA multiple" (e.g., a company might be worth 5x or 10x its annual EBITDA).
2. Debt Servicing: Lenders use EBITDA to see how much cash flow is available to pay off interest and principal on loans.
3. Operational Focus: It highlights how the core business is performing without being "distorted" by historical accounting decisions or tax strategies.

Frequently Asked Questions

Is EBITDA the same as Cash Flow?
No. While EBITDA is a proxy for cash flow, it does not account for changes in working capital (like accounts receivable) or capital expenditures (CapEx) required to maintain the business.

What is a "Good" EBITDA Margin?
This depends heavily on the industry. A software company might have an EBITDA margin of 40%+, while a grocery store might operate on a 5% margin. Always compare EBITDA against industry benchmarks.

Can EBITDA be negative?
Yes. A negative EBITDA suggests that the company is losing money on its core operations, even before considering interest and taxes. This is often a red flag for long-term sustainability.