EBITDA Calculator

EBITDA, short for earnings before interest, taxes, depreciation, and amortization, measures how much a company makes from its core operations before financing decisions, tax bills, and accounting write-downs muddy the picture. Analysts use it to compare businesses across industries or capital structures. This calculator works out EBITDA from operating profit, depreciation, and amortization, and runs the math in reverse if you already know EBITDA and want to back calculate a missing value.

What is EBITDA?

EBITDA tells you what a business earns from running itself, stripped of how it's financed, where it's taxed, and how it depreciates its assets on paper. In equation form:

Depreciation is the accounting cost of tangible assets wearing out, things like machinery, vehicles, and buildings. Amortization does the same job for intangibles like patents and goodwill. Neither one involves cash leaving the bank in the period reported, which is why adding them back to operating profit gives you something closer to operating cash earnings.

Say a company posts $500,000 in operating profit, $80,000 in depreciation, and $20,000 in amortization. EBITDA comes out to $600,000. That's the rough cash number from operations, before debt service, taxes, or asset write-downs eat into it.

How to calculate EBITDA

Two paths get you there. The one this calculator uses starts from operating profit:

1. Pull operating profit (EBIT) off the income statement: revenue minus cost of goods sold minus operating expenses.

2. Find the depreciation expense. It's usually on the income statement or in the notes to the financials.

3. Find the amortization expense. Sometimes it shares a line with depreciation as "D&A," sometimes it's broken out separately.

4. Add the three together: EBITDA = Operating Profit + Depreciation + Amortization.

The other path starts from net income and adds back interest, taxes, depreciation, and amortization. You should land on the same number if the underlying data is consistent.

How to use this calculator

1. Put operating profit (the EBIT figure from the income statement) in the first field.

2. Add the period's amortization expense.

3. Add the period's depreciation expense.

4. Read EBITDA from the last field. To reverse the math, leave any one field blank and fill in the other three.

Why EBITDA matters

A few reasons analysts keep reaching for it:

• It cancels out financing, tax, and depreciation differences, so you can stand a heavily leveraged buyout target next to a debt-free competitor and compare them on the same footing.

• EV/EBITDA is one of the workhorse multiples in M&A, private equity, and equity research. A low multiple can flag an undervalued company. It can also flag a business with problems other investors have already spotted.

• Lenders watch debt-to-EBITDA to size up how much debt a company can carry. Roughly: how many years of operating earnings it would take to clear the balance.

• Tracking EBITDA over time shows whether the core business is improving or rotting, independent of changes in financing or accounting policy.

EBITDA vs. net income

Net income is the bottom line, what's left after interest, taxes, depreciation, and amortization come out. EBITDA sits a few lines up the income statement and ignores all four. Both numbers matter; they just answer different questions.

Net income tells you what's actually available to shareholders, which makes it the right input for earnings per share and return on equity. The trouble is that it gets pushed around by one-off tax events, interest rate moves, and aggressive depreciation schedules, so year-over-year and peer comparisons end up messier than they should be.

EBITDA focuses on operational cash generation. Reach for it when you're comparing companies across industries, sizing up an acquisition, or stress-testing debt coverage. Net income is the one you want when you need to know what actually reaches the shareholders.

Tips

• EBITDA isn't a GAAP or IFRS metric. Companies define it their own way, so check what's in and what's out before comparing figures across firms. "Adjusted EBITDA" especially can hide a lot of choices.

• High EBITDA doesn't mean strong cash flow. Capex, working capital swings, and debt payments still come out of real cash. Pair EBITDA with free cash flow before drawing conclusions.

• Capital-intensive businesses like utilities, telecom, and heavy manufacturing can look great on EBITDA while burning through reinvestment cash just to stand still. That's the version of the metric Warren Buffett complains about.

FAQ

Can EBITDA be negative?

Yes, and it's a serious warning sign. Negative EBITDA means the business isn't covering its operating costs from operations, before debt, taxes, or accounting entries enter the picture. Early-stage startups often run negative EBITDA on purpose while they scale; for a mature company it usually signals that either the model needs rethinking or outside funding is the only thing keeping the lights on.

What is the difference between EBITDA and EBIT?

EBIT is operating profit. It already has depreciation and amortization subtracted; it just doesn't take out interest or taxes. EBITDA adds depreciation and amortization back on top of EBIT. So EBIT = EBITDA minus D&A.

Why do analysts prefer EBITDA over net income for valuations?

Net income depends on things that have nothing to do with how good the business is at making money: how much debt the company carries, where it's incorporated, how aggressively it depreciates its assets. Two companies running identical operations can post very different net income figures for those reasons alone. EBITDA scrapes those layers off so you can compare the underlying business.