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# EBITDA Calculator

Via EBIT
Via Net Income



## 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.

## EBITDA Calculation Example

Let’s delve into a practical example to understand its calculation, using a hypothetical company, BizCorp, as our subject.

The data of this company is like:

• Net Income: $500,000 • Interest:$50,000
• Taxes: $100,000 • Depreciation:$30,000
• Amortization: $20,000 We use the EBITDA formula: Therefore, the EBITDA of BizCorp is: EBITDA =$500,000 + $50,000 +$100,000 + $30,000 +$20,000 = $700,000 An EBITDA of$700,000 reveals the operational earnings of BizCorp, undistorted by interest, tax, depreciation, and amortization expenses. This figure clarifies the company’s operational profitability and cash generation capability from core operations.

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