EBITDA Calculator
Calculate EBITDA — Earnings Before Interest, Taxes, Depreciation, and Amortization — by adding non-cash charges back to operating profit. Use it to compare operating performance across companies with different capital structures, tax regimes, or asset bases.
About this calculator
EBITDA — Earnings Before Interest, Taxes, Depreciation, and Amortization — is operating profit adjusted to remove non-cash charges (D&A) and ignore financing and tax decisions. The bottom-up formula is: EBITDA = Revenue − Operating Expenses + Depreciation + Amortization, where Operating Expenses is the standard income-statement line item that already includes D&A. The two add-backs reverse that subtraction so the result is a measure of underlying operating cash generation. Equivalently (top-down): EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization. Variables: Revenue is total sales for the period; Operating Expenses is everything subtracted before operating income (COGS + SG&A + D&A); Depreciation is the periodic write-down of tangible assets like equipment and buildings; Amortization is the equivalent for intangibles like patents and software. Edge cases: if Operating Expenses already excludes D&A, do not add them back again (double-counting inflates EBITDA); if the period saw an impairment charge, decide whether it is a recurring operating cost or a one-time non-cash hit and adjust accordingly. EBITDA is widely used because it strips out capital-structure (interest), tax-jurisdiction (taxes), and accounting-policy (D&A) effects, making cross-company comparisons cleaner. But it is not cash flow — it ignores working-capital changes and capital expenditure, both of which are real cash. Warren Buffett famously dismissed EBITDA with the quip that EBITDA treats "depreciation as a charge that doesn't need to be deducted from earnings… as if capital expenditure were a non-event." Use EBITDA for relative comparisons; use free cash flow for absolute valuation.
How to use
Example 1 — Mid-sized manufacturer. Revenue $5,000,000; Operating Expenses $4,200,000 (which includes $250,000 depreciation and $50,000 amortization); Depreciation $250,000; Amortization $50,000. Enter these values. Step 1: operating income = 5,000,000 − 4,200,000 = $800,000. Step 2: add back D&A: 800,000 + 250,000 + 50,000 = $1,100,000. Result: EBITDA = $1,100,000. EBITDA margin = 1,100,000 / 5,000,000 = 22%. Verify by hand ✓. A 22% EBITDA margin is solid for industrial manufacturing (sector median 12–18%). Example 2 — SaaS business. Revenue $12,000,000; Operating Expenses $11,400,000 (incl. $400,000 software amortization, $200,000 hardware depreciation); Depreciation $200,000; Amortization $400,000. Step 1: operating income = 12,000,000 − 11,400,000 = $600,000. Step 2: 600,000 + 200,000 + 400,000 = $1,200,000 EBITDA. EBITDA margin = 1,200,000 / 12,000,000 = 10%. Verify ✓. A 10% EBITDA margin is below the SaaS public-company median (~20% at scale) and would prompt questions about sales efficiency, hosting costs, or pricing power.
Frequently asked questions
What is the difference between EBITDA and net income?
EBITDA is earnings before interest, taxes, depreciation, and amortization — a pre-financing, pre-tax, pre-non-cash-charge profitability measure. Net income is what is left after all of those deductions: it includes interest expense, the tax bill, and the full impact of D&A. The gap between the two can be huge: a capital-intensive business (telecom, airlines, real estate) might report low or negative net income while generating substantial EBITDA, because the depreciation charge on its asset base is enormous. The two metrics answer different questions. EBITDA asks "how profitable is the underlying business before financing and accounting choices?" Net income asks "how much is left for shareholders after everything?" Both matter, but for comparing operating performance across companies with different capital structures or tax situations, EBITDA is the more apples-to-apples view.
Why do investors use EBITDA multiples for valuation?
EBITDA strips out the three biggest sources of comparability noise across companies — capital structure (interest expense), tax jurisdiction (effective tax rate), and accounting policy (depreciation method, useful-life assumptions, amortisation of acquired intangibles). That makes EBITDA the cleanest single profit number for comparing operating performance across companies, industries, and geographies. Enterprise-value-to-EBITDA (EV/EBITDA) is the standard valuation multiple in M&A and private equity: it normalises both numerator (using enterprise value rather than equity value) and denominator (using EBITDA rather than net income). Typical multiples by industry: software/SaaS 15–25× EBITDA, healthcare services 10–15×, industrials 6–10×, distribution 4–8×, basic materials 4–7×. Buyers lead with the higher of the EBITDA-multiple or revenue-multiple valuation to anchor negotiations.
What are the most common mistakes when calculating or using EBITDA?
The biggest is double-counting D&A — if your Operating Expenses line already includes D&A, adding them back is correct; if it does not, you should not add them. Always check the income statement structure before plugging numbers in. The second is including non-recurring items as if they were operating: one-time legal settlements, restructuring charges, gains on asset sales, and impairment write-downs distort the figure. "Adjusted EBITDA" tries to remove them, but the adjustments can quickly become subjective and abusive ("EBITDA before bad stuff" is a real meme in finance). The third is comparing EBITDA across companies with materially different CapEx intensity — a 20% EBITDA margin in software is not the same operating quality as a 20% EBITDA margin in steel manufacturing, because steel needs to reinvest heavily and software doesn't. The fourth is treating EBITDA as a proxy for cash flow when it isn't — it ignores changes in working capital and ignores the cash cost of CapEx, both of which can be large. Finally, lenders dislike "EBITDA-based covenants" precisely because companies game the definition; always read the covenant's exact formula before signing.
When should I NOT use EBITDA?
Avoid EBITDA for capital-intensive businesses where CapEx is a real and recurring cash cost — utilities, telecom, airlines, steel, cement, real estate. Their EBITDA can look great while free cash flow is meagre because they have to keep reinvesting just to maintain the asset base; use EV/EBITDA-CapEx or simply free cash flow instead. Do not use EBITDA for highly leveraged businesses where interest expense is the binding constraint on equity value — the interest charge that EBITDA ignores is exactly what makes the equity valuable or worthless. Skip EBITDA for early-stage startups where the metric is essentially negative operating profit before non-cash adjustments — burn rate and runway are more useful framings. And do not use EBITDA as a substitute for free cash flow when valuing a business at acquisition: a buyer who pays an 8× EBITDA multiple but discovers post-close that the business needs $20M/year of CapEx to stay competitive will quickly regret it. Use EBITDA for relative comparison; use FCF for absolute valuation.
How does EBITDA differ from operating cash flow and free cash flow?
EBITDA = Operating Income + D&A — a profitability metric measured on the income statement. Operating Cash Flow (from the cash-flow statement) = Net Income + D&A + other non-cash items + change in working capital — it includes the cash impact of receivables, payables, and inventory changes that EBITDA ignores. Free Cash Flow = Operating Cash Flow − Capital Expenditure — the cash available to all capital providers after maintaining the asset base. The relationships: EBITDA is the most generous of the three (highest number); free cash flow is usually the lowest because it captures both working-capital and CapEx drags. A high-quality business has all three growing together; a warning sign is EBITDA growing while operating cash flow stagnates (receivables building up) or while free cash flow falls (CapEx ramping). For valuation, the textbook answer is discounted free cash flow; EBITDA is the shorthand the market uses because it is easier to compute and compare.