EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) is a financial metric that measures a company’s operating performance by excluding certain non-operating expenses. It provides an indication of a company’s profitability before accounting for interest, taxes, and non-cash expenses.
Page written by Ian Hawkins. Last reviewed on June 26, 2024. Next review due April 6, 2025.
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To calculate EBITDA, follow these steps:
Determine the company’s net income: Obtain the net income figure from the company’s income statement. Net income is the total revenue minus all operating expenses, interest, and taxes.
Add back interest, taxes, depreciation, and amortisation: Identify the interest expense, taxes, depreciation, and amortisation from the company’s financial statements. Add these values back to the net income obtained in step 1.
Calculate EBITDA: Sum up the net income, interest, taxes, depreciation, and amortisation figures to calculate the EBITDA.
The formula for calculating EBITDA is:
EBITDA = Net income + Interest + Taxes + Depreciation + Amortisation
EBITDA is commonly used as a measure of a company’s cash flow and profitability, as it provides insight into its operating performance without considering non-operating factors. However, it’s important to note that EBITDA has limitations and should be used alongside other financial metrics and analysis when evaluating a company’s financial health.
No, EBITDA (Earnings before interest, taxes, depreciation, and amortisation) is not the same as profit. It represents a company's earnings before accounting for interest, taxes, depreciation, and amortization, providing a clearer picture of operational performance.
A "good" EBITDA varies by industry, but generally, a higher EBITDA indicates a more profitable and financially healthy company. It's best to compare EBITDA against industry benchmarks and past performance.
You add back income taxes to EBITDA. This adjustment helps to focus on operational performance without the impact of tax structures.
EBITDA is used instead of net income to get a clearer view of a company's core operational performance. It excludes non-operational factors like interest, taxes, depreciation, and amortization, making it easier to compare companies within the same industry.
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