EBITDA Calculator

Use this calculator to measure EBITDA based on operating profit, depreciation, and amortisation. Essential for business valuation, financial performance analysis, lending discussions, and comparing operating earnings across businesses with different capital structures.

What this calculator does

The EBITDA calculator helps you measure earnings before interest, taxes, depreciation, and amortisation - a widely used profitability metric that strips out financing costs and non-cash accounting charges to focus on operating performance.

It uses:

• operating profit
• depreciation
• amortisation

This gives you EBITDA - the most commonly used metric in business valuation, M&A analysis, and lender covenant reporting.

How to use the EBITDA calculator

1. Enter your operating profit - profit from business operations before interest and tax, also known as EBIT. This comes from your profit and loss statement.
2. Enter your depreciation - the annual non-cash charge for the depreciation of tangible assets such as equipment, vehicles, and machinery
3. Enter your amortisation - the annual non-cash charge for the amortisation of intangible assets such as patents, software licences, and goodwill
4. The calculator instantly shows your EBITDA

If amortisation is zero or not applicable to your business, enter 0.

EBITDA Formula

EBITDA = Operating Profit + Depreciation + Amortisation

Where:

• Operating Profit = profit from operations before interest and tax
• Depreciation = non-cash depreciation expense for tangible assets
• Amortisation = non-cash amortisation expense for intangible assets
• EBITDA = earnings before interest, taxes, depreciation, and amortisation

Example calculation

If:

• Operating profit = 40,000
• Depreciation = 5,000
• Amortisation = 3,000

Then:

• EBITDA = 40,000 + 5,000 + 3,000
• EBITDA = 48,000

Adding back 8,000 of non-cash charges to the 40,000 operating profit produces an EBITDA of 48,000 - a measure of operating earnings before these accounting adjustments.

What is EBITDA?

EBITDA - earnings before interest, taxes, depreciation, and amortisation - is a profitability metric that removes the effects of financing decisions, tax structures, and non-cash accounting charges from reported earnings. By stripping these out, EBITDA provides a measure of operating performance that is more comparable across different businesses, regardless of how they are financed or how they structure their accounting.

It is the most widely used metric in business valuation, private equity analysis, and M&A - particularly as the basis for valuation multiples such as EV/EBITDA (enterprise value to EBITDA).

What is a good EBITDA?

EBITDA in absolute terms is less meaningful than EBITDA margin - EBITDA as a percentage of revenue:

• EBITDA margin of 10% to 20% - reasonable for most established businesses
• EBITDA margin of 20% to 35% - strong, typical of well-run businesses with good cost control
• EBITDA margin above 35% - excellent, often seen in capital-light businesses with high operating leverage

EBITDA benchmarks vary significantly by industry:

• SaaS and software - typically 15% to 30% EBITDA margin for mature businesses
• Manufacturing - typically 10% to 20%
• Retail - typically 5% to 15%
• Professional services - typically 15% to 30%

Why EBITDA is used in business valuation

EBITDA is the most common basis for valuing privately held businesses. Valuation is typically expressed as a multiple of EBITDA:

• Small businesses - typically 3x to 5x EBITDA
• Mid-market businesses - typically 5x to 8x EBITDA
• High-growth or market-leading businesses - 8x to 15x or more

The multiple applied depends on growth rate, industry, profitability consistency, customer concentration, and other qualitative factors. A business generating 500,000 EBITDA valued at 5x would have an enterprise value of 2,500,000.

Why EBITDA matters for financial analysis

Tracking EBITDA helps you:

• compare operating performance against competitors with different financing or depreciation structures
• prepare for business valuation conversations with investors, acquirers, or lenders
• monitor whether the core business is generating sufficient earnings to service debt and fund growth
• understand how changes in revenue, cost, or investment affect the headline metric that buyers and lenders focus on
• satisfy financial reporting requirements and lender covenants that reference EBITDA

EBITDA and lender covenants

Many business loans and credit facilities include financial covenants tied to EBITDA - for example, a minimum EBITDA coverage ratio or a maximum debt-to-EBITDA ratio. Lenders use EBITDA as a proxy for a business's ability to generate earnings to service debt.

Understanding your EBITDA and how it compares to debt obligations is essential when managing loan covenants and preparing for refinancing conversations.

When to use this calculator

Use this calculator when you want to:

• calculate EBITDA for a specific period as part of regular financial reporting
• prepare a valuation presentation for investors or acquirers
• assess whether the business meets lender covenant thresholds
• compare operating performance against prior periods or industry benchmarks
• build a financial model that uses EBITDA as an input for valuation or scenario analysis

Common mistakes when calculating EBITDA

Common mistakes include:

• treating EBITDA as equivalent to cash flow - EBITDA does not account for changes in working capital, capital expenditure, or actual cash tax payments
• using the wrong operating profit figure - EBITDA starts from operating profit before interest and tax, not net profit
• omitting depreciation or amortisation - both must be added back for an accurate EBITDA figure
• comparing EBITDA across businesses with very different capital structures without acknowledging the limitations - a highly leveraged business and a debt-free business may have similar EBITDA but very different free cash flow

EBITDA vs operating profit

These two metrics are closely related but measure profitability at different levels.

• Operating profit - earnings after depreciation and amortisation are deducted, but before interest and tax
• EBITDA - operating profit with depreciation and amortisation added back

EBITDA is always equal to or higher than operating profit for any business with non-zero depreciation or amortisation charges. The difference reflects the size of the non-cash charge. Use the Operating Profit Calculator to calculate operating profit before deriving EBITDA.

EBITDA vs cash flow

This is one of the most important distinctions in financial analysis.

• EBITDA approximates cash earnings from operations but does not account for working capital changes or capital expenditure
• Free cash flow accounts for all of these and represents the actual cash the business generates that can be distributed or reinvested

A business with strong EBITDA but high capital expenditure requirements may generate much less free cash flow. Use the Free Cash Flow Calculator and Cash Flow Calculator alongside EBITDA for a complete cash picture.

Related calculations

Once you know your EBITDA, you may also want to:

• Use the Operating Profit Calculator to calculate the operating profit input
• Use the Depreciation Calculator to calculate the depreciation input
• Use the Free Cash Flow Calculator to measure cash generation after capital expenditure
• Use the Cash Flow Calculator to track actual cash movement alongside EBITDA

Useful resources

• QuickBooks - accounting software with profit and loss reporting for calculating operating profit and EBITDA inputs
• Xero - cloud accounting platform with financial reporting and EBITDA-relevant metrics
• Sage - accounting and financial management software with profitability analysis tools for business reporting

FAQs

What is EBITDA?

EBITDA - earnings before interest, taxes, depreciation, and amortisation - is a profitability metric that removes financing costs and non-cash accounting charges to produce a measure of core operating earnings. It is widely used in business valuation and financial analysis.

How do you calculate EBITDA?

EBITDA = Operating Profit + Depreciation + Amortisation.

What is the difference between EBITDA and net profit?

Net profit deducts interest, tax, depreciation, and amortisation from revenue. EBITDA adds depreciation and amortisation back and excludes interest and tax - producing a higher figure that focuses on operating performance rather than the full accounting result.

Is EBITDA the same as cash flow?

No. EBITDA does not account for changes in working capital, capital expenditure, or actual cash tax payments. It is an approximation of operating earnings, not a cash flow measure. Free cash flow is a more accurate measure of actual cash generation.

Why is EBITDA used for business valuation?

EBITDA provides a standardised measure of operating earnings that can be compared across businesses with different financing structures, tax positions, and depreciation policies. Valuation multiples applied to EBITDA allow buyers to assess businesses on a like-for-like basis.

What is a typical EBITDA multiple for a small business?

Most small to mid-size privately held businesses trade at 3x to 6x EBITDA. Multiples vary significantly based on industry, growth rate, profitability consistency, and strategic value to potential buyers.

Can EBITDA be negative?

Yes. If operating losses are large enough that adding back depreciation and amortisation still leaves a negative figure, EBITDA is negative. This is common in early-stage businesses investing heavily in growth before reaching profitability.

How does EBITDA relate to loan covenants?

Many lenders include EBITDA-based covenants in loan agreements - for example, a minimum interest coverage ratio expressed as EBITDA divided by interest expense, or a maximum leverage ratio expressed as total debt divided by EBITDA. Understanding your EBITDA is essential for monitoring compliance with these covenants.

Interpreting your result

Your ebitda result should always be interpreted in context:

• compare it against your historical baseline
• review it alongside the main commercial or operational drivers behind the metric
• compare it across products, channels, periods, or segments where relevant
• avoid interpreting the result in isolation without checking the underlying input values

A single period can be noisy, so trend direction over several periods is usually more useful than one standalone result.

Data quality checklist

Before acting on this result, verify:

• the inputs use the same time period and reporting basis
• one-off anomalies are identified separately from steady-state performance
• discounts, refunds, taxes, or fees are handled consistently where relevant
• the underlying values are complete enough to support a meaningful conclusion

Small input inconsistencies can materially change the result.

How to improve this metric

Practical ways to improve this metric depend on the underlying business model, but often include:

• identify the main driver behind the result before making changes
• test one variable at a time so the impact is easier to measure
• compare performance by segment rather than only at an overall level
• review the metric regularly so changes can be caught early

Improvement is most reliable when measurement definitions remain stable over time.

Benchmarks and target setting

A good target depends on your industry, business model, and stage of growth.

When setting targets:

• compare against your own historical trend before relying on outside benchmarks
• define both minimum acceptable and aspirational target ranges
• review targets whenever pricing, cost, demand, or channel mix changes materially
• pair benchmark review with the underlying commercial context, not just the final number

Your own historical performance is usually the most practical benchmark.

Reporting cadence and decision workflow

For most teams, a simple cadence works best:

• Weekly: monitor the metric when trading conditions or campaign activity change quickly
• Monthly: compare the result against target and prior periods
• Quarterly: reassess assumptions, targets, and the main drivers behind the metric

A practical workflow is to calculate the metric, identify the primary driver of change, test one improvement, and then review the next comparable period before scaling.

Common analysis scenarios

You can use this metric in several practical scenarios:

• monthly performance reviews
• pricing, margin, or cost analysis
• planning and forecasting discussions
• investor, lender, or management reporting

In each scenario, pair the result with the underlying business context so decisions are not made on one number alone.

FAQ extensions

Should I compare this metric across channels?

Yes, but only when definitions and attribution rules are consistent.

How many periods should I review before making changes?

At least 3 comparable periods is a good baseline unless there is a clear data issue or one-off event.

What should I do if this metric improves but profit declines?

Check whether costs, discounts, conversion quality, or downstream profitability changed at the same time.