EBITDA

What is EBITDA?

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) is a proxy for operating cash generation and the most widely used metric in corporate finance for valuation, credit analysis, and M&A. By adding back non-cash charges (D&A) and capital-structure items (interest, taxes), EBITDA allows comparison across companies with different debt levels, tax jurisdictions, and depreciation policies. Critics (including Warren Buffett) note that EBITDA ignores CapEx (a real cash cost), which is why EBITDA can overstate true earnings power for capital-intensive businesses. Adjusted EBITDA further excludes one-time items; the gap between reported and adjusted EBITDA is itself an important signal of management credibility.

Formula

Calculator

How to Use

1. 1
   Start with operating income (EBIT): From the income statement: revenue minus COGS and operating expenses, before interest and tax.
2. 2
   Add D&A: From the cash flow statement (operating section) or the notes to financials.
3. 3
   Calculate margin: EBITDA / Revenue × 100. Typical ranges: SaaS 20-40%, industrial 10-20%, retail 5-12%.
4. 4
   Use in EV/EBITDA: Divide Enterprise Value by EBITDA to get the most common M&A valuation multiple.

Worked Example