How to use it
- Choose where to start: revenue and expenses or net income.
- Enter revenue; it is needed for the margins in both methods.
- Fill in the costs, or net income with interest and taxes, from the income statement for the same period.
- Enter depreciation and amortization (D&A) to get EBIT as well.
Formulas
- From revenue: EBITDA = revenue − cost of goods sold − operating expenses (without D&A).
- From net income: EBITDA = net income + interest + taxes + D&A.
- EBIT = EBITDA − D&A.
- EBITDA margin = EBITDA ÷ revenue × 100%, and the same for the EBIT margin.
A tax benefit or interest income can be entered as a negative number. Without revenue the margins are not shown.
Worked example
A company has revenue of 1,000,000, cost of goods sold of 600,000 and other operating expenses of 200,000, not counting 50,000 of depreciation and amortization.
- EBITDA = 1,000,000 − 600,000 − 200,000 = 200,000.00.
- EBITDA margin = 200,000 ÷ 1,000,000 = 20 %.
- EBIT = 200,000 − 50,000 = 150,000.00, an EBIT margin of 15 %.
The same company reports net income of 100,000 after 20,000 of interest and 30,000 of tax: 100,000 + 20,000 + 30,000 + 50,000 = 200,000.00, the same EBITDA.
Common mistakes
- Leaving depreciation inside operating expenses in the top-down method: that gives EBIT, not EBITDA.
- Mixing periods, for example a quarter of revenue with a year of expenses.
- Comparing an adjusted EBITDA from one report with an unadjusted one from another.
- Treating EBITDA as profit available to owners: interest, taxes and asset replacement still have to be paid.