📊 How to Calculate EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s a widely used metric to evaluate a company’s operating performance by stripping out non-operational expenses.

✅ Why Use EBITDA?

EBITDA helps investors and analysts:

• Compare profitability between companies without the effects of financing and accounting decisions.
• Assess a company’s ability to generate cash flow from operations.

🧮 The EBITDA Formula

There are two common ways to calculate EBITDA:

Method 1: From Net Income

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

Method 2: From Operating Income

EBITDA = Operating Income (EBIT) + Depreciation + Amortization

📘 Example

Let’s say a company reports the following:

• Net Income: $200,000
• Interest: $50,000
• Taxes: $30,000
• Depreciation: $40,000
• Amortization: $20,000

EBITDA = 200,000 + 50,000 + 30,000 + 40,000 + 20,000 = $340,000

🚨 A Word of Caution

While EBITDA can highlight core profitability, it does not account for capital expenditures, working capital needs, or debt servicing, so it should not be used in isolation for financial decisions.