See true operating earnings, before the noise.
Enter your income statement figures and watch EBITDA build up from net income: add back interest, taxes, depreciation and amortization. You also get your EBITDA margin and operating profit (EBIT) in one clean view.
The numbers
Use the same period for every figure (a full year or a single quarter). Enter costs as positive numbers.
What your numbers say
How EBITDA builds up from net income
Net income plus the four add-backs
Revenue, EBITDA and net income side by side
Earnings scorecard
Line-by-line breakdown
Each add-back removed from net income to reach EBITDA, with its share of the total.
| Component | Amount | % of EBITDA | % of revenue |
|---|
EBITDA, explained
What EBITDA measures and why people use it
EBITDA stands for earnings before interest, taxes, depreciation and amortization. It starts from net income and adds back four items that say more about how a company is financed and taxed than about how well its core operations run. Interest reflects the capital structure, taxes reflect the jurisdiction, and depreciation and amortization are non-cash charges tied to past spending. Strip those away and you are left with a cleaner read on operating performance.
Because it removes financing and accounting choices, EBITDA lets you compare two businesses on similar footing even when one carries heavy debt and the other does not. Lenders and buyers lean on it heavily: acquisition prices are often quoted as a multiple of EBITDA, and loan covenants frequently cap debt at a set number of times EBITDA. The margin, EBITDA divided by revenue, tells you how many cents of operating earnings each dollar of sales produces.
Where EBITDA can mislead you
EBITDA is not cash flow, and treating it as such is a classic mistake. It ignores the real cash a business spends to replace worn-out equipment, the interest it genuinely owes, and the taxes it must actually pay. A capital-heavy company can show a healthy EBITDA while burning cash to keep its assets running. Depreciation is a non-cash charge, but the spending behind it is very real over time.
Read EBITDA next to free cash flow, operating profit (EBIT) and the change in working capital, not on its own. Watch for adjusted EBITDA figures that add back one-off costs, stock compensation or restructuring, since aggressive adjustments can flatter a weak year. Used with that skepticism, EBITDA is a useful lens; used alone, it can hide the exact problems an investor most needs to see.
Common questions
What is the EBITDA formula?
EBITDA equals net income plus interest expense plus income taxes plus depreciation plus amortization. You can also build it up from operations: operating profit (EBIT) plus depreciation plus amortization. Both routes land on the same number when the figures come from the same income statement.
What is a good EBITDA margin?
It depends heavily on the industry. Software and services often run 20 to 40 percent or higher, while grocery and other thin-margin retail may sit in the single digits. The margin is EBITDA divided by revenue, so compare it against direct competitors and the company's own history rather than a single universal benchmark.
What is the difference between EBITDA and EBIT?
EBIT, also called operating profit, is earnings before interest and taxes. EBITDA goes one step further and also adds back depreciation and amortization. So EBITDA equals EBIT plus depreciation plus amortization, which means EBITDA is always equal to or larger than EBIT for a company with those non-cash charges.
Is EBITDA the same as cash flow?
No. EBITDA ignores capital spending, changes in working capital, actual interest paid and actual taxes paid, all of which move real cash. A business can post strong EBITDA and still run short of cash. Always read EBITDA alongside free cash flow before drawing conclusions about liquidity.
Why do buyers value companies as a multiple of EBITDA?
EBITDA approximates operating earnings before financing and tax choices, so a multiple of it gives a quick, comparable gauge of what a business is worth regardless of how the current owner financed it. A buyer can then apply their own debt and tax situation on top of that operating base.
Can EBITDA be negative?
Yes. If a company loses enough money at the operating level, adding back interest, taxes, depreciation and amortization may still leave a negative figure. Negative EBITDA is a warning sign that the core business is not yet covering its own operating costs.
Estimates for planning only. EBITDA is not a substitute for cash flow, and results depend on the accounting figures you enter. Verify every number against audited statements before making financial or investment decisions.