Profitability
EBITDA
EBITDA is earnings before interest, taxes, depreciation and amortization: a measure of operating profit before financing, tax and non-cash charges.
EBITDA = Net income + Interest + Taxes + Depreciation + Amortization
Worked example
| Net income | $300,000 |
| Interest | $40,000 |
| Taxes | $80,000 |
| Depreciation and amortization | $60,000 |
$300,000 + $40,000 + $80,000 + $60,000 = $480,000
Why it matters
EBITDA lets you compare operating performance across companies with different debt, tax positions and asset bases, which is why buyers and lenders quote it.
Common mistakes
Where it misleads
Treating EBITDA as cash: it ignores capital spending and changes in working capital.
Stacking "adjustments" until adjusted EBITDA stops describing the business.
Comparing EBITDA margins across industries with very different capital needs.
Related terms
Keep reading
- Gross marginGross margin is the share of revenue left after paying the direct costs of delivering what you sold.
- Contribution marginContribution margin is what each sale leaves over after every cost that rises with that sale, available to cover fixed costs and profit.
- Budget vs actualBudget vs actual compares what happened in a period with what was planned, line by line, to show where the business is ahead of or behind its plan.
Stop calculating it by hand.
Dear CFO keeps your statements, forecasts and metrics current from the systems you already run.