EBITDA Calculator

EBITDA strips a company's earnings back to what the core business actually produces, before financing choices, tax rules, and accounting charges get involved. It stands for earnings before interest, taxes, depreciation, and amortization.

Enter any three of operating profit, depreciation, amortization, and EBITDA, and this calculator fills in the fourth. You can also build the same number up from net income, add revenue to get the margin, or add enterprise value to see the multiple.

The EBITDA formula

The direct route starts from operating profit and adds back the two non-cash charges.

Rearranged, the same relationship recovers any of the other three:

There is a second, equally standard route that starts from the bottom line and works upward, adding back everything the acronym excludes:

Both should land on the same figure for the same period. When they do not, the two calculations are drawing on different operating profit or D&A numbers, which is worth chasing down before relying on either.

How to use this calculator

1. Enter operating profit, depreciation, and amortization for the same period, and pick a scale to match your figures.

2. Read EBITDA. To run it backward, enter EBITDA with any two of the others and the missing figure fills in.

3. Turn on Start from net income instead to build the same number up from the bottom line.

4. Turn on Add the EBITDA margin to enter revenue and see EBITDA as a share of sales.

5. Turn on Add an EV/EBITDA multiple to enter enterprise value and see the multiple.

Why anyone uses EBITDA

The appeal is comparability. Two companies with the same operations can report very different net income simply because one carries more debt, sits in a higher tax jurisdiction, or depreciates its assets faster. Stripping those out gets closer to a like-for-like read on the operating business.

• Comparing companies across borders, where tax regimes differ sharply.

• Comparing companies with different capital structures, where interest expense distorts the bottom line.

• Valuation, where EV/EBITDA is the standard multiple in most sectors.

• Lending covenants, which are frequently written as a ratio of debt to EBITDA.

The EBITDA margin

EBITDA on its own is a raw number, so it tells you little without scale. The margin divides it by revenue and turns it into a percentage you can compare across companies of very different sizes.

What counts as good depends almost entirely on the sector. Software businesses often clear 30 percent or more; grocery and distribution run in single digits and are healthy there. Compare against peers in the same line of business rather than an absolute number.

EV/EBITDA, the valuation multiple

Enterprise value divided by EBITDA is the most widely used valuation multiple outside of banking. Because both the numerator and denominator sit above the capital structure, it compares companies with different debt loads more fairly than a price-to-earnings ratio.

A lower multiple can mean a cheaper business or a riskier one. As with the margin, the figure only means something next to comparable companies and recent transactions in the same sector.

What EBITDA hides

The criticism is as old as the measure, and it is fair. Depreciation is a real cost wearing a non-cash disguise: equipment does wear out and does have to be replaced. A capital-heavy business that reports strong EBITDA can still consume more cash than it generates once that replacement spending is counted.

• It ignores capital expenditure, so a business that must constantly reinvest looks better than it is.

• It ignores working capital, so growth that ties up cash in inventory and receivables is invisible.

• It ignores interest, which is a genuine obligation for a leveraged company.

• It is not a defined measure under IFRS or US GAAP, so two companies can calculate it differently.

Read it alongside free cash flow and operating cash flow rather than in place of them. EBITDA is a useful lens on the operating business, not a substitute for whether the company actually generates cash.