The acronym EBITDA is short for earnings before interest, taxes, depreciation, and amortization. In other words, EBITDA is a measure of the operating income that helps you compare the operating profit of companies by excluding these specific expenses.

Interest, taxes, depreciation, and amortization can vary dramatically based on the age of your company’s physical assets, debt profile, and past performance. Our EBITDA calculator helps you create a detailed business valuation in order to better understand your business’s overall operations. It’s also useful for assigning enterprise value when considering two companies. 

An EBITDA calculator also makes it easier to compare the following metrics for better business projections:

• Net profit
• Fixed assets
• Operational profitability 
• Tangible assets
• EBITDA margin
• Capital structure
• Cash profit
• Operating costs 
• Non cash expenses
• Total revenue

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How to Use This EBITDA Calculator

You can use this EBITDA calculator to determine your earnings before interest, taxes, depreciation, and amortization.

You’ll need to follow the process below: 

1. Add your operating profit in the first form field.
2. Input your interest in the second form field.
3. Add your taxes in the third form field.
4. Input your depreciation in the fourth form field.
5. Add your amortization in the fifth form field.

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Operating Profit and EBITDA

The primary difference between operating profit and EBITDA is that operating profit takes depreciation and amortization expense into account. In other words, operating profit is how much your business earns before interest and taxes. 

Operating profit and EBITDA are both key metrics that reflect the stability and efficiency of your operations. However, even though EBITDA is an important way of evaluating your company’s operations, it isn’t recognized by Generally Accepted Accounting Principles (GAAP).

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Interest Expenses

Often shown on income statements under non operating expenses, interest expense is the cost of borrowing money. You’ll need to make interest payments in addition to the principal amount you originally borrowed.

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Depreciation and Amortization

Depreciation occurs when the value of a physical asset decreases over time due to wear and tear from routine use. This expense can be found on your income statement. 

It represents how much of an asset’s value was used for that specific year. It may not be considered an asset or liability in this instance.

Meanwhile, amortization lowers the book value of an intangible asset like software. Amortization expenses are spread over a defined period of time.

These are a few of the assets that may be considered for depreciation and amortization expenses:  

• Furniture
• Office equipment
• Machinery
• Buildings
• Computers
• Vehicles
• Software
• Loans
• Patents

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How to Calculate EBITDA

If you want to perform an EBITDA calculation on your own without using the EBITDA calculator, there are two formulas you can use that represent the components in different ways:

EBITDA = operating income + depreciation + amortization

If your operating income is $25,000 with depreciation of $5,000 and an amortization expense of $8,000, your EBITDA calculation would look like this: 

EBITDA= $25,000 + $5,000 + $8,000
EBITDA = $38,000

The second type of EBITDA formula breaks operating income down into net income, interest expenses, and taxes:

EBITDA = net income + interest + taxes + depreciation + amortization 

For example, imagine that your company’s net income is $100,000 with interest expenses of $10,000 and $25,000 in taxes. With a depreciation expense of $10,000 and an amortization expense of $30,000, here’s the resulting formula: 

EBITDA = $100,000 + $10,000 + $25,000 + $10,000 + $30,000
EBITDA = $175,000

The figures from both formulas can also be located on your organization’s financial statements. This includes your company’s income statement, cash flow statement, and balance sheet.

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EBITDA FAQ

Many people have questions about EBITDA as well as concepts like depreciation and amortization. Let’s discuss some of the questions you may have while calculating EBITDA and analyzing your company’s operating performance.

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Why is EBITDA important?

You can use the EBITDA calculation to:

• Evaluate free cash flow
• Project a company’s profitability 
• Assess company value
• Compare companies’ earnings before interest, taxes, depreciation, and amortization
• Assess day-to-day performance of the core business

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How does EBITDA differ from EBITA?

The main difference between EBITDA and EBITA is that EBITDA uses depreciation in its calculation. EBITDA is more commonly used.

However, EBITA is an option for businesses that don’t have high capital expenditures that could alter the final numbers. In some cases, it’s a good option if a startup is in the early stages of calculating their company’s operational performance. 

Both formulas may also be used by analysts alongside each other in order to get a clearer understanding of a company’s financial health.

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How to calculate EBITA

Similar to the formula for EBITDA, this is the EBITA formula: 

EBITA = net income + interest + taxes + amortization 

The only difference is that depreciation is excluded.

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What is EBITA margin?

This margin is considered to be more conservative than an EBITDA margin because it doesn’t take depreciation costs into account.

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What is the EBITDA margin formula?

This is the formula to find EBITDA as a margin: 

EBITDA margin = (EBITDA / sales) × 100 

If EBITDA is $50,000 and the sales are $250,000, the resulting formula would appear like this:

EBITDA margin = ($50,000 / $250,000) × 100 
EBITDA margin = 20%

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What is a good EBITDA percentage?

A good EBITDA percentage is industry specific. However, 10% is considered to be a strong margin percentage for most businesses.

If a company has a higher EBITDA margin compared to the industry average or other historical results, it signals greater efficiency and a higher competitive advantage. A lower EBITDA margin indicates potential weakness in a company’s overall business model.

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How to calculate EBITDA from gross profit

One possible formula for calculating EBITDA uses net income. If you already know your gross profit, you can determine your net income by subtracting total expenses:

Net income = gross profit – total expenses

Once you know your company’s net income, plug that figure into the formula for EBITDA along with interest, taxes, depreciation, and amortization:

EBITDA = net income + interest + taxes + depreciation + amortization

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How to get from revenue to EBITDA

To perform an EBITDA calculation from revenue, you’ll want to use this EBITDA formula:

EBITDA = operating income – operating expenses + depreciation + amortization

Operating income is the revenue from your company’s standard business operations. It doesn’t include interest from bonds, savings, accounts, or dividends.

Essentially, operating expenses are business expenses that are incurred in the normal course of doing business. The most common expenses include:

• Rent for buildings or facilities
• Wages and employee benefits
• Accounting services
• Marketing and advertising
• Supplies and equipment
• Repairs and maintenance
• Utilities
• Insurance
• Research and development

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How to calculate EBITDA from net income

You’ll want to use the following EBITDA equation to calculate EBITDA from net income:

EBITDA = net income + interest + taxes + depreciation + amortization

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Why isn’t EBITDA recognized by GAAP?

GAAP doesn’t currently recognize EBITDA because it can lead to misrepresentations about a company’s operating performance and valuation. Despite these concerns, there are many accountants who believe EBITDA should become a GAAP metric.

They have asked the Financial Accounting Standards Board (FASB) to define what EBITDA measures. Anything outside their definition would become adjusted EBITDA.According to the Financial Accounting Foundation, GAAP is governed by both the FASB and the Governmental Accounting Standards Board.