Softonic

EBITDA Calculator

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EBITDA strips out financing and accounting choices to show how much cash a business throws off from its core operations. Enter net income, then add back the four items that are not part of day-to-day operations, interest, taxes, depreciation and amortization, and the calculator returns the EBITDA figure that analysts, lenders and acquirers use to compare companies on a level field. It is the starting point for valuation multiples, debt covenants and margin analysis, so getting the add-backs right matters.

How EBITDA is built up

  1. 1

    Start from net income

    Take the bottom-line profit straight from the income statement, after every expense has been deducted.

  2. 2

    Add back interest and taxes

    These reflect the capital structure and jurisdiction, not operating performance, so they are removed.

  3. 3

    Add back depreciation and amortization

    These are non-cash accounting charges that spread past spending over time. Adding them back gets you to operating cash earnings.

The formula

EBITDA is built from the bottom up, starting at the profit a company actually reported:

EBITDA = Net income + Interest + Taxes + Depreciation + Amortization

The logic is that interest depends on how a company is financed, taxes depend on where it operates, and depreciation and amortization (D&A) are non-cash charges driven by past investment decisions. Removing all four leaves a number that approximates the cash generated by core operations, useful for comparing two companies with very different debt loads, tax regimes or asset bases.

Worked example

A company reports net income of $200,000. Its income statement also shows $30,000 of interest expense, $50,000 of income tax, $40,000 of depreciation and $10,000 of amortization.

EBITDA = 200,000 + 30,000 + 50,000 + 40,000 + 10,000 = 330,000

So the business produced ≈ $330,000 of operating earnings before financing and accounting effects, versus the $200,000 net income headline.

Add-backs at a glance

Component What it is Why it is added back
Net income Reported bottom-line profit The starting point
Interest Cost of debt financing Capital-structure choice, not operations
Taxes Income tax expense Depends on jurisdiction, not operations
Depreciation Non-cash charge on tangible assets Non-cash, reflects past capex
Amortization Non-cash charge on intangible assets Non-cash, reflects past acquisitions

Pitfalls

  • EBITDA is not cash flow. It ignores working-capital swings, capital expenditure and actual interest and tax paid. A capital-intensive business can post strong EBITDA and still burn cash.
  • It hides real costs. Depreciation is a proxy for the capex needed to keep assets running, adding it back forever pretends machines never wear out.
  • “Adjusted EBITDA” can be abused. Some companies add back stock compensation, restructuring or one-off items to flatter the number. Treat aggressive adjustments with suspicion.
  • Margin context matters. EBITDA ÷ revenue gives the EBITDA margin; compare it within an industry, not across very different ones.

Frequently Asked Questions

Earnings Before Interest, Taxes, Depreciation and Amortization. It measures operating earnings before those four items, which are seen as outside core operations.

No. Net profit is what remains after interest, taxes and D&A. EBITDA adds those back, so it is always equal to or higher than net income and is a measure of operating performance, not final profit.

Because it lets you compare companies with different debt levels, tax situations and depreciation policies on a more like-for-like basis. It is also the base for valuation multiples such as EV/EBITDA.

No. The numbers you enter are used only to run the calculation. They are not stored, saved or shared.

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