EBITDA Calculator

EBITDA Definition & Formula

EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, is a financial metric used to assess a company’s operating performance. It measures a company’s profitability by excluding items that can be seen as unrelated to the core operations of the business.

For our EBITDA calculator, the formula to calculate EBITDA is as follows:

EBIT = Net Income + Interest + Taxes

EBITDA = EBIT + Depreciation + Amortization (Method 1 we used in this calculator)

so,

EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization (Method 2 we used in this calculator)

Now, let’s discuss the components:

1. Net Income: Net Income is a company’s profit after all expenses have been deducted from its revenue. It is at the bottom line of an income statement.
2. Interest: This is the cost of borrowed money. Adding back interest expenses to net income removes the costs associated with the company’s debt, focusing solely on operational performance.
3. Taxes: Including taxes back into net income helps to ascertain a company’s operational performance without the influence of its tax obligations.
4. Depreciation: This refers to the reduction in the value of an asset over time, often due to wear and tear. For accounting purposes, businesses spread out the cost of a tangible asset over its useful life.
5. Amortization: Similar to depreciation, but it’s for intangible assets like patents or copyrights. It’s the process of spreading out the cost of an intangible asset over its expected useful life.