Why Investors Love This One Number
Two companies can report wildly different profits while running nearly identical operations — because one carries heavy debt, another sits in a high-tax country, and a third depreciates aging factories. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) strips all of that away to reveal the earnings the core business actually generates.
This free EBITDA calculator offers two paths: build up from net income by adding back interest, taxes, depreciation, and amortization — or rebuild from revenue by subtracting operating expenses and adding back the non-cash charges. Either way you get EBITDA, the EBITDA margin, and every step shown.
Two paths → operating earnings
Please enter non-negative values and pick a calculation path.
EBITDA strips out financing, tax, and non-cash accounting choices so operating performance can be compared across companies — but it ignores real cash costs like interest and capex, so never use it alone.
How to Use This Calculator
- Pick a path — from net income (you have the bottom line) or from revenue (you have the top line).
- Enter revenue — needed for the margin in both modes.
- Fill in the add-backs — interest, taxes, depreciation, amortization (or operating expenses for the revenue path).
- Click Calculate EBITDA — read EBITDA, margin, EBIT, and the breakdown.
The Formulas
From revenue: EBITDA = Revenue − Operating expenses + Depreciation + Amortization
EBITDA margin = (EBITDA ÷ Revenue) × 100
Worked example
Net income $200,000; interest $50,000; taxes $30,000; depreciation $40,000; amortization $10,000; revenue $1,000,000:
- EBITDA = 200,000 + 50,000 + 30,000 + 40,000 + 10,000 = $330,000.
- EBITDA margin = 330,000 ÷ 1,000,000 = 33% — thirty-three cents of operating earnings per revenue dollar.
- Same result via revenue: $1,000,000 − $720,000 operating expenses (which already include the same $50,000 of D&A) + $50,000 D&A = $330,000.
Finding Every Line on a Real Income Statement
Start from the bottom and work up. Net income is the final line. Just above it sit income tax expense and interest expense (sometimes in a non-operating section) — add both back. Depreciation and amortization are trickier: under many formats they are buried inside cost of sales and operating expenses rather than shown as separate lines, in which case you will find the totals in the cash-flow statement or the notes to the accounts. Only income taxes are added back — payroll, sales and property taxes are ordinary operating costs that stay inside EBITDA’s costs. If the statement reports EBIT (operating income), you can skip the bottom-up route entirely: EBITDA = EBIT + depreciation + amortization. One warning for comparisons: some statements treat items such as stock-based compensation inside general operating expenses while peers break them out — that asymmetry is exactly what “adjusted EBITDA” comparisons get into arguments about, so read the footnotes before trusting a reported margin.
EBITDA Margin Benchmarks by Industry
There is no universal “good” margin — a 12% margin can be excellent or mediocre depending on the business. As a rough orientation drawn from common industry references, typical ranges look like this:
| Industry | Typical EBITDA margin |
|---|---|
| Software / SaaS | 20–40% |
| Professional services | 15–28% |
| Healthcare | 15–25% |
| Manufacturing | 10–20% |
| Restaurants | 8–15% |
| Retail | 5–10% |
Software sits at the top because its costs barely rise with each new customer; retail and restaurants sit at the bottom because every sale carries heavy goods and labour costs. Use these only to pick the right peer group — the useful comparison is always against direct competitors at a similar stage, and against your own trend over time.
From EBITDA to a Price Tag: How Buyers Use the Multiple
One of EBITDA’s most practical jobs is pricing a business. Buyers commonly agree a multiple of sustainable earnings, so:
- Enterprise value = EBITDA × multiple. With the worked example’s $330,000 of EBITDA at a 6× multiple: EV = 330,000 × 6 = $1,980,000.
- Equity value = EV − net debt. If the company owes $300,000 of net debt: 1,980,000 − 300,000 = $1,680,000 for the equity holders.
The multiple itself is the market’s verdict on quality and growth: retail businesses often change hands around 6–10×, professional services 8–14×, technology 15–25×. Want to see where the EV side of that equation comes from? Try our Enterprise Value Calculator and compare the result against the multiple-implied price.
Who This Helps and Smart Tips
- Investors and analysts comparing operating efficiency across companies and industries.
- Business owners preparing for a sale or financing — buyers speak EBITDA.
- Students learning to read income statements like a professional.
Tips
- Compare margins within the same industry — software and retail live at different levels.
- Ask whether a quoted figure is adjusted EBITDA (it often adds back stock comp and one-offs, flattering the number).
- EBITDA ignores real cash costs — interest, taxes, and capex still have to be paid.
- A rising margin with flat revenue usually means genuine efficiency gains.
- Use it with cash-flow metrics, never instead of them.
Frequently Asked Questions
What does EBITDA stand for?
Earnings Before Interest, Taxes, Depreciation, and Amortization. It measures what a company’s core operations earn before financing costs, tax regimes, and non-cash accounting charges distort the picture.
How do you calculate EBITDA?
Two equivalent ways: from the bottom up — net income plus interest, taxes, depreciation, and amortization; or from the top down — revenue minus operating expenses, plus depreciation and amortization. Both should give the same answer.
What is a good EBITDA margin?
One higher than your peers at a similar stage — there is no universal number. Software companies often exceed 30%, while grocery retailers can be healthy in the single digits. Context is everything.
What is the difference between EBITDA and net income?
Net income is the final bottom line after everything, including interest, taxes, and non-cash charges. EBITDA adds those four categories back to isolate operating performance, making cross-company comparison cleaner.
What are the limitations of EBITDA?
It ignores interest (a real cost of debt), taxes (a real cost of operating), depreciation (assets really wear out and need replacing), and working-capital needs. It can make a cash-strapped company look healthier than it is.
What is adjusted EBITDA?
A company-defined variant that also adds back items like stock-based compensation, restructuring charges, or acquisition costs. It is usually higher than standard EBITDA — always check exactly what was adjusted before comparing.
Is EBITDA the same as operating cash flow?
No, and confusing them is the classic EBITDA mistake. EBITDA ignores real cash costs: capital expenditure (assets really wear out and must be replaced), changes in working capital, and the actual timing of interest and tax payments. A company can post strong EBITDA while burning cash. Use EBITDA to compare operating performance, then check operating and free cash flow to judge financial health.
What are adjusted, normalised, LTM EBITDA and EBITDAR?
Flavours of the same idea. Adjusted EBITDA also adds back management-chosen items (stock compensation, one-off charges); normalised EBITDA smooths irregular items to show sustainable earnings; LTM EBITDA covers the last twelve months regardless of fiscal year (useful for valuation); EBITDAR adds back rent to compare businesses that lease versus own their premises, common with airlines and restaurants. Always check what was added back before comparing.
Final Thoughts
EBITDA is a lens, not a verdict: it clarifies operating performance beautifully and hides cash reality just as effectively. Use it to compare, then follow the cash to decide.
Continue the analysis with our CAGR calculator and loan calculator.
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