EBITDA Calculator
Calculate EBITDA from net income and add-backs.
EBITDA approximates operating cash flow by adding back non-operating and non-cash items.
How the Math Works
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, and represents a key profitability metric used to evaluate a company's operational performance. To calculate EBITDA, start with the net income figure from the income statement, then add back four specific items: interest expenses (the cost of borrowed capital), taxes owed to government authorities, depreciation (the allocation of asset costs over time), and amortization (the spreading of intangible asset costs). The formula EBITDA = net income + interest + taxes + D&A effectively strips away non-operational and non-cash expenses to reveal the cash-generating ability of a company's core business activities.
Practical Applications
Investors and analysts use EBITDA calculations to compare companies within the same industry by removing differences in capital structure, tax environments, and accounting methods that might distort net income comparisons. When applying this calculator, gather the necessary financial figures from a company's income statement and cash flow statement, ensuring all values are from the same accounting period. The EBITDA figure is particularly valuable for valuation purposes, as analysts often use EBITDA multiples to determine if a company is overvalued or undervalued relative to peers, and creditors may examine EBITDA to assess a company's ability to service its debt obligations.
Day-to-Day Use
For investors and financial professionals, understanding EBITDA helps make informed decisions about which stocks to buy or sell based on operational performance rather than accounting quirks. Business owners can use EBITDA calculations to benchmark their company against competitors and identify areas where operational efficiency could be improved. Even non-financial managers benefit from grasping this concept, as it provides a clearer picture of how effectively their department or product line contributes to the company's bottom line before considering financing costs, tax implications, and the gradual write-off of equipment and intangible assets.
Worked example
$50k + 8k + 12k + 10k → $80k.
FAQ
Why use it?
It compares core profitability across companies with different financing and tax.