EBITDA Calculator
Working out whether a company is operationally profitable — before financing and accounting decisions cloud the picture? Enter your figures below to calculate EBITDA and EBITDA margin in seconds.
What Is EBITDA?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It measures a company's core operating performance by stripping out costs that vary depending on capital structure, tax jurisdiction, and accounting methods.
Think of EBITDA as a way to compare two businesses side by side — one financed entirely by equity, the other loaded with debt — on equal terms. Because it excludes interest payments, tax obligations, and non-cash charges like depreciation, EBITDA isolates how well the actual business operations generate earnings.
Analysts, investors, and lenders use EBITDA to value companies (especially in mergers and acquisitions), assess debt serviceability, and benchmark operating efficiency across industries.
How to Calculate EBITDA
There are two standard methods that should give the same result.
Bottom-up method (from Net Income):
EBITDA = Net Income + Interest Expense + Income Tax + Depreciation + Amortization
This is the most common approach when starting from an income statement. You take the bottom line and add back the four items that EBITDA excludes.
Top-down method (from Revenue):
EBITDA = Revenue − Cost of Goods Sold − Operating Expenses (excluding D&A)
This method works well when you have a detailed profit-and-loss breakdown and want to build up from the top line.
EBITDA Margin formula:
EBITDA Margin = (EBITDA ÷ Total Revenue) × 100
EBITDA margin tells you what percentage of revenue converts to operating earnings before financing and accounting effects. A 25% EBITDA margin means the company keeps 25p of every £1 in revenue as operating profit before interest, taxes, and non-cash charges.
EBITDA Calculation — Worked Example
Consider a UK manufacturing company with these annual figures:
Income statement:
• Revenue: £2,000,000
• Cost of goods sold: £1,200,000
• Operating expenses (excluding D&A): £250,000
• Depreciation: £100,000
• Amortization: £50,000
• Interest expense: £40,000
• Pre-tax income: £360,000
• Corporation tax (25%): £90,000
• Net income: £270,000
Bottom-up calculation:
£270,000 + £40,000 + £90,000 + £100,000 + £50,000 = £550,000 EBITDA
Top-down calculation:
£2,000,000 − £1,200,000 − £250,000 = £550,000 EBITDA
EBITDA Margin:
£550,000 ÷ £2,000,000 × 100 = 27.5%
Both methods produce the same result. This company converts 27.5% of revenue into operating earnings before financing and accounting adjustments — a solid margin for manufacturing.
What Is a Good EBITDA Margin?
EBITDA margins vary significantly by industry. Comparing a software company against a retailer is meaningless — always benchmark within the same sector.
Typical EBITDA margins by industry:
• Software and SaaS: 25–40%
• Real estate: 30–50%
• Healthcare: 15–25%
• Manufacturing: 10–20%
• Restaurants and hospitality: 10–18%
• Retail: 5–10%
• Airlines: 12–20%
• Construction: 8–15%
A company with an EBITDA margin above its industry average is generally operating more efficiently than competitors. However, margin alone does not tell the full story — capital expenditure requirements, debt levels, and working capital needs all matter.
EBITDA vs Other Profitability Metrics
EBITDA vs Net Income: Net income includes all costs — interest, taxes, depreciation, and amortization. EBITDA strips these out. Use net income for bottom-line profitability; use EBITDA for comparing operational performance across companies with different capital structures.
EBITDA vs EBIT: EBIT (Earnings Before Interest and Taxes) still includes depreciation and amortization as expenses. EBITDA adds them back. For capital-intensive businesses where depreciation is large (manufacturing, telecoms, utilities), the gap between EBIT and EBITDA can be substantial.
EBITDA vs Operating Cash Flow: Operating cash flow captures actual cash movements including working capital changes. EBITDA ignores working capital entirely — a company can have positive EBITDA but negative cash flow if receivables balloon or inventory builds up. Cash flow is the harder metric to manipulate.
Limitations of EBITDA
EBITDA has real blind spots. Warren Buffett has criticised the metric, noting that depreciation represents a very real cost — machinery wears out and must be replaced.
Key limitations to keep in mind:
• Ignores capital expenditure requirements — a company needing £500k/year in replacement equipment looks identical to one needing zero
• Can mask unsustainable debt levels since interest payments are excluded
• Does not account for working capital needs or cash flow timing
• Non-GAAP metric — companies can adjust it creatively ("Adjusted EBITDA" often adds back stock compensation, restructuring charges, or one-off costs)
• Not useful for comparing companies with vastly different depreciation profiles
Never use EBITDA in isolation. Always pair it with free cash flow analysis, debt-to-EBITDA ratios, and capital expenditure trends for a complete picture of financial health.
Frequently Asked Questions
What does EBITDA stand for?
Earnings Before Interest, Taxes, Depreciation, and Amortization. It measures a company's operating profit before financing costs, tax obligations, and non-cash accounting charges like asset depreciation and amortization of intangible assets.
Is EBITDA the same as profit?
No. EBITDA excludes interest, taxes, depreciation, and amortization. Net profit includes all these costs. EBITDA is typically higher than net profit and shows operational performance only — not the final bottom line.
Why do analysts and investors use EBITDA?
EBITDA allows fair comparison between companies with different capital structures, tax situations, and depreciation policies. It is widely used in M&A valuations, leveraged buyout analysis, debt covenants, and cross-industry benchmarking.
What is a good EBITDA margin?
It depends on the industry. Software companies often achieve 25–40%, manufacturing 10–20%, and retail 5–10%. A margin above the industry average suggests the company operates more efficiently than competitors.
How is EBITDA different from EBIT?
EBIT includes depreciation and amortization as expenses. EBITDA adds them back. The difference matters most for capital-intensive businesses where depreciation is a large line item — manufacturing, telecoms, and utilities.
Can EBITDA be negative?
Yes. Negative EBITDA means the company's core operations are losing money before any financing or accounting adjustments. This is a serious warning sign about business viability and sustainability.
Why is EBITDA criticised by some investors?
Critics including Warren Buffett argue that depreciation represents real costs — equipment wears out and must be replaced. EBITDA can also mask excessive debt levels and ignores capital expenditure needs, potentially making unprofitable companies appear financially healthy.
How do I calculate EBITDA from an income statement?
Start with net income on the bottom line, then add back four items: interest expense, income tax expense, depreciation, and amortization. All four are typically found on the income statement or disclosed in the notes to financial statements.