Calculate EBITDA
Add back interest, taxes, depreciation and amortisation to net income to find EBITDA, then see it as a percentage of revenue.
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- EBITDA margin
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EBITDA: —, EBITDA margin: —
What is EBITDA?
EBITDA stands for earnings before interest, taxes, depreciation and amortisation. It takes net income and adds back the costs of financing, tax and non-cash accounting charges, leaving a measure of the cash profit a business generates from its core operations.
How to calculate EBITDA
Start with net income and add back interest, taxes, depreciation and amortisation. For example, net income of £100,000 plus £20,000 interest, £30,000 taxes, £25,000 depreciation and £5,000 amortisation gives an EBITDA of £180,000. Enter your figures above to calculate it automatically.
What does EBITDA margin show?
EBITDA margin expresses EBITDA as a percentage of revenue, so it shows how much of every pound of sales is turned into operating profit before financing and accounting adjustments. For example, EBITDA of £180,000 on revenue of £600,000 is a margin of 30%. A higher margin generally means a more efficient, more profitable core business.
Limitations of EBITDA
Because EBITDA ignores interest, tax, depreciation and amortisation, it can flatter businesses with heavy debt or significant capital spending — costs that still have to be paid. It also isn't a recognised accounting standard, so companies can calculate it differently, making comparisons unreliable without checking the underlying figures. Treat EBITDA as one input alongside cash flow, debt levels and net profit, not a stand-alone measure of financial health.
People also ask
- EBITDA equals net income plus interest, plus taxes, plus depreciation, plus amortisation. Each of these is added back to net income to arrive at the figure.
- EBITDA strips out financing structure, tax jurisdiction and non-cash accounting charges, making it easier to compare the underlying operating performance of businesses with different capital structures or tax positions.
- It varies significantly by industry, so EBITDA margin is most useful compared against similar businesses or the same business over time, rather than against a fixed benchmark.
- No. EBITDA ignores working capital changes, capital expenditure, interest and tax payments, all of which affect actual cash flow. It's a useful proxy for operating profitability, but not a substitute for a cash flow statement.
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