EBITDA Calculator

EBITDA is one of the most important metrics investors, lenders, and business owners use to evaluate company performance. Yet many entrepreneurs don’t fully understand what it measures or why it matters.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) shows your true operating profit—how much money your business makes from actual operations, ignoring financing decisions and accounting adjustments.

Need to know your EBITDA right now? Use our calculator below. It takes 60 seconds and includes three calculation methods. Select the method that matches your available financial data.

The calculator above includes three modes:

• Simple EBITDA: Enter net income + interest + taxes + depreciation. Best if you have your P&L handy (fastest method)
• From Income Statement: Enter revenue, COGS, and operating expenses. Best if you want to see the full breakdown
• Margin Analysis: Benchmark your EBITDA against your industry. Best if you want to see how you compare to competitors

Use whichever mode matches your available financial data. All three methods calculate the same EBITDA.

What Is EBITDA?

Now that you’ve calculated your EBITDA (or seen how simple it is), let’s understand what that number actually means.

EBITDA is operating profit before four items are subtracted:

• E = Earnings (net income, your bottom line)
• B = Before
• I = Interest (loan payments)
• T = Taxes (government taxes)
• D = Depreciation (non-cash equipment wear)
• A = Amortization (non-cash intangible asset wear)

In plain English: EBITDA shows how much money your business makes from actual operations, ignoring how it’s financed and what accounting adjustments are made.

The Three Formulas Explained

Formula 1 (Simplest — Add-Back Method):

EBITDA = Net Income + Interest + Taxes + Depreciation & Amortization

Start with net profit. Add back the four items to see operational profit.

Formula 2 (From Revenue — Working Backward):

EBITDA = Revenue − COGS − Operating Expenses

Start with sales. Subtract costs and overhead. What’s left is EBITDA.

Formula 3 (From EBIT — Operating Income):

EBITDA = EBIT + Depreciation & Amortization

If your P&L shows EBIT, just add back the non-cash charges.

Why EBITDA Matters More Than Net Income

Consider two identical coffee shops:

Coffee Shop A (Debt Financed):

• Revenue: $500,000
• Operating Costs: $350,000
• EBITDA: $150,000
• Interest on $200K loan: $20,000
• Taxes: $26,000
• Depreciation: $10,000
• Net Income: $94,000

Coffee Shop B (Equity Financed):

• Revenue: $500,000
• Operating Costs: $350,000
• EBITDA: $150,000 (identical)
• Interest: $0 (no debt)
• Taxes: $32,000
• Depreciation: $10,000
• Net Income: $108,000 (looks better)

Same operations. Same EBITDA. Different net income due to financing.

This is why investors, lenders, and buyers all use EBITDA—it removes the noise of financing decisions and accounting choices.

EBITDA vs Net Income vs EBIT: What’s the Difference?

Let’s trace one company’s P&L to see all three metrics:

What each metric tells you:

• EBITDA ($450,000): Pure operational profit (what we care about)
• EBIT ($400,000): Operational profit after depreciation
• Net Income ($277,500): Final profit after everything

For valuation and comparisons, EBITDA is king. Net income is distorted by depreciation, interest, and taxes.

EBITDA Margin: The Real Benchmarking Tool

Knowing your EBITDA is useful, but comparing it as a percentage of revenue is more powerful. That percentage is your EBITDA margin.

Formula:

EBITDA Margin = (EBITDA ÷ Revenue) × 100%

Real-World Industry Benchmarks

How to Use Margin for Benchmarking

Example: Your E-Commerce Company

• Annual Revenue: $2,000,000
• Annual EBITDA: $280,000
• Your EBITDA Margin: 14% ($280,000 ÷ $2,000,000 = 0.14)

Benchmark: E-commerce typically targets 12-18% EBITDA margin

Verdict: You’re within range. Good operational efficiency.

If you were at 8%: Below average—time to cut costs or raise prices

If you were at 22%: Above average—you’re operating very efficiently

How to Calculate EBITDA: Step-by-Step

Step 1: Get Your Latest Financial Documents

You need:

• Profit & Loss statement (P&L) for the most recent period (monthly or annual)
• Income statement (often the same as P&L)
• Your tax return (for accurate tax expense)

Step 2: Locate Net Income

Find the bottom line on your P&L. This is your starting point.

Example: Net Income = $100,000

Step 3: Add Back Interest Expense

Find interest payments on your P&L. This is interest paid on loans, lines of credit, or other debt.

Example: Interest Expense = $20,000

Step 4: Add Back Tax Expense

Find your income tax expense (what you paid in taxes to the government).

Example: Income Tax Expense = $25,000

Step 5: Add Back Depreciation & Amortization

Find these non-cash charges on your P&L. They reduce profits on paper but don’t impact cash.

Example: Depreciation = $10,000 + Amortization = $5,000 = $15,000 total

Step 6: Calculate EBITDA

Add them all together:

EBITDA = $100,000 + $20,000 + $25,000 + $15,000 = $160,000

Step 7: Calculate EBITDA Margin (Optional)

Divide by revenue to see your operational efficiency:

EBITDA Margin = ($160,000 ÷ $800,000) × 100% = 20%

Real-World EBITDA Examples

Example 1: Manufacturing Company

From P&L:

• Net Income: $150,000
• Interest Expense: $25,000 (equipment loans)
• Income Taxes: $40,000
• Depreciation: $20,000 (machinery)
• Amortization: $5,000 (software licenses)

Calculation:

EBITDA = $150,000 + $25,000 + $40,000 + $25,000 = $240,000

Revenue: $1,200,000
EBITDA Margin: $240,000 ÷ $1,200,000 = 20%
Industry Benchmark: 12-18%
Verdict: Above average operational efficiency ✓

Example 2: SaaS Company

From P&L:

• Revenue: $500,000
• COGS (cloud hosting): $75,000
• Operating Expenses (salaries, marketing): $200,000
• Depreciation & Amortization: $15,000

Calculation (from revenue method):

EBITDA = $500,000 − $75,000 − $200,000 = $225,000

EBITDA Margin: $225,000 ÷ $500,000 = 45%
Industry Benchmark: 20-40%
Verdict: Excellent profitability, above benchmark ✓

Example 3: Consulting Firm

From P&L:

• Revenue: $1,000,000
• Operating Expenses (salaries 70%, overhead 10%): $800,000
• EBIT: $200,000
• Depreciation & Amortization: $10,000

Calculation (from EBIT method):

EBITDA = $200,000 + $10,000 = $210,000

EBITDA Margin: $210,000 ÷ $1,000,000 = 21%
Industry Benchmark: 18-30%
Verdict: Solid performance, middle of range ✓

Common EBITDA Mistakes to Avoid

Mistake 1: Confusing EBITDA with Cash Flow

The Problem: You see $300K EBITDA and assume strong cash.

The Reality: EBITDA doesn’t account for:

• Capital expenditures (equipment, vehicles—real cash out)
• Debt principal payments (only interest is added back)
• Working capital needs (inventory, receivables)
• Taxes paid in cash

High EBITDA ≠ Strong cash flow. Always calculate actual cash flow separately.

Mistake 2: Ignoring Your Industry’s Normal Margin

The Problem: Your margin is 18%, you think it’s great.

The Reality: A restaurant with 18% EBITDA margin is exceptional. SaaS at 18% is below average.

Action: Always benchmark against your specific industry, not just any industry.

Mistake 3: Adding Back One-Time Expenses

The Problem: You had a $50K lawsuit settlement. You add it back to EBITDA.

The Reality: One-time items can be adjusted for, but a buyer will question whether expenses improve in the future. Be transparent about what’s truly operational.

Mistake 4: Using EBITDA for Loan Capacity

The Problem: You have $200K EBITDA, so you assume you can borrow $200K.

The Reality: Lenders use debt service coverage ratio (EBITDA ÷ annual debt payments). Most want ≥1.25x ratio.

With $200K EBITDA: You can typically borrow $80-120K (with ~2-3 year terms), not $200K.

Mistake 5: Forgetting Owner Salary in EBITDA

The Problem: You’re the owner and take no salary. You calculate EBITDA at $300K.

The Reality: That EBITDA should be reduced by a market-rate salary ($80-100K for most industries). Otherwise, valuation will be artificially inflated.

Better approach: Use “normalized EBITDA” with market-rate salaries for fair valuation.

EBITDA and Business Valuation

EBITDA is the foundation of most business valuations. Buyers and investors use EBITDA multiples to determine what they’ll pay for your company.

Formula:

Business Value = EBITDA × Industry Multiple

Valuation Multiples by Industry

Why the differences?

• SaaS gets 4-8x because of recurring revenue and scalability
• Retail gets 1.5-3.5x because of high ongoing expenses and lower predictability
• Consulting gets 2-4x because it relies on owner/key person relationships

Example: Your SaaS company with $300K EBITDA could be worth $1.8M – $2.4M (6-8x multiple).

FAQs: Common EBITDA Questions

Q: Why add back depreciation if it’s a real cost?

A: Depreciation is real but non-cash. It’s an accounting allocation of a capital purchase (like equipment) over time. EBITDA shows operational reality before accounting choices. When you bought the equipment, cash left your account. Depreciation just spreads that cost over years.

Q: Can EBITDA be negative?

A: Yes. Negative EBITDA means your operations are unprofitable before financing and accounting adjustments. This is a serious red flag and signals fundamental business problems.

Q: How do I improve my EBITDA?

A: Three levers:

1. Increase revenue — Sell more products/services
2. Reduce COGS — Lower material costs, negotiate better supplier rates
3. Reduce operating expenses — Cut overhead (rent, salaries, marketing waste)

Usually, levers 2 and 3 are easier and faster than doubling revenue.

Q: Is EBITDA better than net income?

A: Not better—different. EBITDA shows operational performance. Net income shows bottom-line profitability. Use both together. EBITDA for valuation and comparisons. Net income for understanding true profit.

Q: Do lenders care about EBITDA?

A: Yes, heavily. They calculate debt service coverage ratio: EBITDA ÷ annual debt payments. Most lenders want ≥1.25x ratio (meaning your EBITDA covers loan payments 1.25 times over).

Q: Should I include owner salary in EBITDA?

A: For valuation purposes, yes. Use market-rate salary for your role, not what you actually take. If you take $0 salary but market rate is $80K, reduce EBITDA by $80K for accurate valuation.