EBITDA Calculator

The most argued-about number in finance

EBITDA is earnings before interest, taxes, depreciation, and amortisation. It is quoted in nearly every business sale, sits at the centre of most lending decisions, and turns up in company presentations everywhere. It is also the number that two of the most respected investors alive spent decades attacking in public.

That combination makes it unusual and worth understanding properly. This calculator will give you the figure in a second. The more valuable thing is knowing what it captures, what it deliberately ignores, and why intelligent people disagree so sharply about whether it should exist at all.

What goes in, and what has to stay out

Revenue is total sales for the period. Expenses is what it cost to run the business, and the whole calculation depends on what you leave out of that number.

Four things must be excluded: tax, interest, depreciation, and amortisation. That is what the acronym is announcing. So include your cost of goods, wages, rent, marketing, and administration, then stop. Do not subtract loan interest, do not subtract the tax bill, and do not subtract the depreciation charge on your equipment or the amortisation of intangible assets.

There is a second route to the same figure that is worth knowing, because it is how analysts usually build it from published accounts. Start at net income, then add back interest, tax, depreciation, and amortisation, which is where the name comes from: earnings before those four. This tool takes the more direct road, working forward from revenue, which suits an owner looking at their own books rather than someone reading a filing.

The cable company that invented it

EBITDA was not handed down by accountants. It was invented in the 1970s by John Malone, running a cable television company, and understanding why makes the whole argument clearer.

Cable had an awkward shape. Building the network meant enormous upfront spending on laying cable and buying equipment, followed by years of steady, high-margin subscription revenue. Under normal accounting, all that infrastructure spending flowed through as depreciation, which crushed reported earnings for years. On paper the business looked like it was losing money. In reality it was building an asset that would pay out for decades.

So Malone stripped out the depreciation to show what the business was actually generating before the accounting treatment of past investment. And for that business, at that time, it was a genuinely fair way to see it. That is the honest case for EBITDA, and it is stronger than its critics allow. The trouble started when a metric designed for one particular situation became the default number for everybody.

1.1 million, and the question it does not answer

Say a company books 5,000,000 in revenue and 3,900,000 in expenses, having correctly left out interest, tax, and its 300,000 of depreciation and amortisation.

Its EBITDA is 1,100,000. Note where that sits: the same company's EBIT, which does subtract that 300,000 of depreciation, is 800,000. The gap between those two figures is exactly the depreciation and amortisation you chose not to count, and that gap is the entire controversy in one line.

So the useful question is not whether 1,100,000 is the right answer. It is: does that 300,000 represent a real cost this business will have to pay again? Sometimes it genuinely does not, and sometimes it very much does, which is what the next section is about.

Two companies, same EBITDA, very different reality

Here is the objection, and it is a good one. Depreciation is not an imaginary expense. It is the accounting record of equipment wearing out, and equipment that wears out has to be replaced with actual money. Ignore depreciation and you are quietly assuming the machines last forever.

Take two companies, each with EBITDA of 1,100,000. The first is asset-light and needs perhaps 100,000 a year of capital spending to keep going, leaving 1,000,000. The second runs heavy equipment and needs 900,000 a year just to stand still, leaving 200,000. Identical on the metric. One has five times more actual money left than the other.

That is what Warren Buffett was getting at with his much-quoted question about whether management think the tooth fairy pays for capital expenditures. Charlie Munger was blunter, suggesting the acronym be mentally replaced with a rude phrase meaning fake earnings. Their point was not that adjusting figures is wrong. Buffett publishes his own adjusted measure, owner earnings, which starts from net income, adds back non-cash charges, and then subtracts the capital spending needed to maintain the business. The objection is specifically to stopping halfway: adding back the charge for using up assets while never accounting for the cost of replacing them.

Which gives you the practical rule. EBITDA is most trustworthy for asset-light businesses whose depreciation genuinely overstates future spending, and least trustworthy for capital-heavy ones such as airlines, telecoms, manufacturing, and utilities, where it can make a demanding business look comfortably profitable. Whenever you are handed an EBITDA figure, the follow-up question is always the same: what does this company have to spend each year just to stay where it is?

Why it survives the criticism anyway

Given all that, why is EBITDA still everywhere? Because for certain jobs it is genuinely the right tool, and the criticism above does not touch those jobs.

It compares operations across companies that are financed and taxed differently. Two rivals, one debt-laden and one debt-free, one in a high-tax country and one in a low-tax one, will show very different net incomes while running equally good operations. EBITDA sets those differences aside so you can look at the trading underneath.

It also strips out accounting choice. Depreciation schedules are estimates, and two companies with identical assets can charge different amounts depending on the method and useful life they picked. Removing D&A removes that discretion from the comparison.

And it is the working currency of two important rooms. Lenders use it to size how much debt a business can carry, because it approximates the earnings available to service that debt. Buyers use it as the basis for pricing, since businesses are commonly bought and sold at a multiple of EBITDA rather than of profit. If you ever sell a company, this is the number the offer will be built on, which is reason enough to know yours. The EBITDA Multiple Calculator shows how that pricing works.

Nobody is required to define it the same way

One last thing that catches people out. EBITDA is not a standardised accounting measure. Revenue and net income are defined by accounting rules and audited. EBITDA is not, which is why it is described as non-GAAP, and it means there is genuine latitude in how a company calculates the figure it publishes.

In the US the securities regulator sets rules about how such measures must be presented, requiring companies to show the nearest official figure alongside and explain the difference, precisely because the room for creativity is real. You will also meet adjusted EBITDA, where a company additionally strips out items it considers one-off or unrepresentative. Sometimes that is entirely fair, such as removing a genuine one-time legal settlement. Sometimes the list of exclusions grows suspiciously long and every bad thing turns out to be exceptional.

So when you are handed someone else's EBITDA, ask what is in it. When you produce your own, as you are doing here, keep the definition steady from period to period. A number you calculate the same way every quarter is genuinely informative. A number whose definition drifts is just a story.

Questions people ask

How do you calculate EBITDA?

Either take revenue and subtract expenses while leaving out interest, tax, depreciation, and amortisation, which is what this tool does, or start at net income and add those four back. Both routes reach the same figure.

Is EBITDA the same as profit?

No, and treating it as profit is the common mistake. It leaves out interest, tax, and the cost of assets wearing out, all of which are real. It measures operating earnings before those charges, not money you can spend.

Is EBITDA the same as cash flow?

No. It ignores capital spending and changes in working capital, both of which consume real cash. A business can show healthy EBITDA and still be short of money.

What is a good EBITDA?

The absolute figure only tells you scale. To judge it, compare it against revenue as a margin and against businesses in the same industry, since what counts as healthy varies enormously between an asset-light software firm and an airline.

References

The rules on presenting non-standard measures, and the alternative treatment of capital spending, come from the primary sources below.

1. U.S. Securities and Exchange Commission. Non-GAAP Financial Measures: Compliance and Disclosure Interpretations (requirements for presenting measures such as EBITDA alongside the comparable GAAP figure). sec.gov
2. Buffett, W. E. (1986). Berkshire Hathaway Shareholder Letter, appendix on owner earnings (net income plus non-cash charges, less the capital expenditure required to maintain the business). berkshirehathaway.com