How to Calculate EBITDA?
Calculating EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is an important task for understanding your company’s operational profitability. EBITDA is a financial metric that shows how much profit your company makes from its core operations, excluding the costs related to interest, taxes, depreciation, and amortization. It’s a useful measure to assess a company’s financial performance without the influence of financing and accounting decisions.
For a more detailed guide, you can visit our blog post on How to Calculate EBITDA.
Here’s how you can calculate EBITDA:
1. Start with Net Income:
- What it is: Net Income is the total profit your company has after subtracting all expenses, including costs, taxes, and interest. It’s the amount of money your company actually earns after covering all its costs.
- How to use it: To find EBITDA, you begin by identifying your company's net income. This is typically found at the bottom of your income statement.
2. Add Back Interest:
- What it is: Interest expenses are the costs your company pays on any loans or debt. These costs are excluded from EBITDA because they are related to financing decisions, not the core operations of the business.
- How to use it: Add the total interest expenses your company paid during the period to your net income.
3. Add Back Taxes:
- What it is: Taxes are the amounts your company pays to the government. Like interest, taxes are excluded from EBITDA because they depend on the company’s tax situation, not its operational performance.
- How to use it: Add the total tax expenses to your net income.
4. Add Back Depreciation:
- What it is: Depreciation represents the reduction in value of your tangible assets (like machinery or buildings) over time. It’s a non-cash expense, meaning it doesn’t involve an actual outflow of cash during the period.
- How to use it: Add the total depreciation expenses to your net income.
5. Add Back Amortization:
- What it is: Amortization is similar to depreciation, but it applies to intangible assets like patents, trademarks, or goodwill. It’s also a non-cash expense.
- How to use it: Add the total amortization expenses to your net income.
6. Calculate EBITDA:
- What it is: After adding back interest, taxes, depreciation, and amortization to your net income, you’ll have your EBITDA. This figure represents your company’s earnings before accounting for the costs of financing, taxes, and the non-cash expenses of depreciation and amortization.
- How to use it: The final sum is your EBITDA, which gives you insight into your company’s profitability from its core operations.
Formula:
EBITDA=Net Income + Interest + Taxes + Depreciation + Amortization
To make this process even easier, our EBITDA Calculator automates these steps for you. Just enter the values for Net Income, Interest, Taxes, Depreciation, and Amortization, and let the tool do the math!
