EBITDA calculator

How do you calculate EBITDA?

EBITDA is earnings before interest, tax, depreciation and amortization. There are two routes to it:

• From operating profit: EBITDA = operating profit (EBIT) + depreciation + amortization.
• From net income: EBITDA = net income + income tax + net interest expense + depreciation + amortization.

The default inputs describe one company both ways, so the two tabs give the same answer, as they should when nothing else sits between operating profit and profit before tax. Operating profit of $600,000 plus depreciation of $250,000 and amortization of $50,000 is EBITDA of $900,000. On revenue of $5,000,000 that is an EBITDA margin of 18%.

EBITDA from net income, step by step

Working up from the bottom line means adding back, in turn, each item that EBITDA leaves out:

Use net interest: finance costs minus any interest income. If the company earns more interest than it pays, net interest is negative and EBIT comes out lower than profit before tax. If the accounts show other items between operating profit and profit before tax, such as a share of an associate's profit or a gain on investments, the net income route will not match operating profit, and you need to decide which side of the line they belong on.

EBITDA margin: formula and what moves it

EBITDA margin = EBITDA / revenue x 100. On the defaults, $900,000 / $5,000,000 = 18%, while the EBIT margin is $600,000 / $5,000,000 = 12%. The six-point gap is depreciation and amortization of $300,000, which is one third of EBITDA.

• More depreciation or amortization with the same operating profit raises EBITDA and the margin, because both are added back.
• More revenue with the same EBITDA lowers the margin.
• Interest and tax change net income but not EBITDA, which lets EBITDA set businesses with different borrowing and tax positions on the same footing.

A business with heavy equipment can show a high EBITDA margin and a much lower EBIT margin. The gap between the two is the cost of wearing out its assets.

Is EBITDA defined by IFRS or US GAAP?

Not under IFRS, and in the United States the SEC staff handle it in their guidance on non-GAAP financial measures. EBITDA is a figure companies and analysts calculate, so two companies can mean slightly different things by it.

Under IFRS. The IASB's Effects Analysis of IFRS 18, published in April 2024, states that IFRS 18 does not define EBITDA. It says the IASB considered a defined EBITDA subtotal but its research found no consensus among investors about what EBITDA represents.

In the United States. Section 103 of the SEC staff's Compliance and Disclosure Interpretations on non-GAAP financial measures (page last updated December 13, 2022) deals with EBIT and EBITDA. It says that "earnings" in EBITDA means net income as presented under GAAP. A measure calculated differently should carry a distinct title, such as Adjusted EBITDA. A company presenting EBITDA as a performance measure should reconcile it to net income, not to operating income, and must not present it per share.

That is why this calculator offers the net income route: it follows the definition the SEC staff describe.

IFRS 18 and EBITDA from 2027

IFRS 18 Presentation and Disclosure in Financial Statements, issued in April 2024, applies to annual reporting periods beginning on or after January 1, 2027, with earlier application permitted, and replaces IAS 1. It requires two new defined subtotals in the statement of profit or loss: operating profit, and profit before financing and income taxes. Operating profit becomes a defined figure, which the IASB expects to make the operating profit that EBITDA starts from more comparable between companies that apply IFRS.

IFRS 18 also brings in management-defined performance measures: subtotals of income and expenses that a company uses in public communications but that the standards do not specify. These need disclosure in the notes, including how they are calculated. According to the IASB's Effects Analysis, operating profit or loss before depreciation, amortization and impairments within the scope of IAS 36 is not treated as one of these measures, while an EBITDA calculated any other way and used in public communications would be one.

That is what the optional impairment field is for. Enter impairment losses included in operating profit and the calculator adds a second figure, before depreciation, amortization and impairments, beside plain EBITDA. On the defaults, $70,000 of impairment gives $970,000, or 19.4% of revenue.

Worked examples in pounds, euros and dirhams

In the euro example depreciation and amortization make up 45.5% of EBITDA, so the EBITDA margin is almost twice the EBIT margin. The dirham example shows the limit of the measure: the company loses money at the operating level, yet its EBITDA is positive because the add-backs exceed the loss.

Where to find the numbers in a company's accounts

• Revenue, operating profit, finance costs, tax and net income are on the face of the statement of profit or loss, called the income statement in the US.
• Depreciation and amortization may not have their own line if expenses are grouped by function, such as cost of sales and administrative expenses. Look in the notes on property, plant and equipment and on intangible assets, or in the cash flow statement, where the indirect method can add them back on the way to cash from operations.
• Under IFRS 18, a company that presents operating expenses by function will also disclose how much depreciation, amortization, employee benefits, impairment losses and inventory write-downs each operating line item includes, according to the IASB's Effects Analysis.

Take every figure from the same period and the same set of accounts. A quarter's depreciation added to a year's operating profit understates EBITDA.

How to calculate EBITDA in Excel

Put revenue in B1, operating profit in B2, depreciation in B3 and amortization in B4. EBITDA is =B2+B3+B4, which returns 900000 on the default figures, and the EBITDA margin is =(B2+B3+B4)/B1, formatted as a percentage, which shows 18%.

For the net income route, put net income, tax and net interest in B6 to B8 and use =B6+B7+B8+B3+B4. If both routes are filled in from the same accounts, a check cell =B2-(B6+B7+B8) should return zero; anything else is an item between operating profit and profit before tax that needs a decision.

What EBITDA leaves out, and common mistakes

EBITDA is not cash flow. It ignores the money spent replacing equipment and buying intangibles, the cash tied up in inventory and receivables, interest that has to be paid, and tax. For cash, see free cash flow, which feeds a DCF valuation.

• Comparing different definitions. Adjusted EBITDA can exclude restructuring costs, share-based pay or other items a company chooses. Check the reconciliation before comparing.
• Gross interest instead of net. Adding back finance costs while leaving interest income in overstates EBITDA.
• Counting an item twice. If depreciation is already excluded from the operating profit you start from, adding it again inflates the result.
• Leases. If lease costs are recorded as depreciation and interest rather than as rent, EBITDA excludes them, so compare companies that account for leases the same way.
• Margins over 100%. Usually a mismatch of periods or of businesses.

Glossary

EBITDA: earnings before interest, tax, depreciation and amortization. EBIT: earnings before interest and tax, close to operating profit. Depreciation: the cost of a tangible asset spread over its useful life. Amortization: the same for an intangible asset, such as software or a license. Impairment: a write-down when an asset is worth less than its carrying amount. EBITDA margin: EBITDA divided by revenue. Management-defined performance measure: under IFRS 18, a company's own subtotal of income and expenses used in public communications. Adjusted EBITDA: EBITDA with further items a company chooses to exclude.

Frequently asked questions

Courses behind company accounts

Sources and review