EBITDA Calculator

What This Calculator Does

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a measure of operating profitability that strips out the effects of financing decisions, tax jurisdictions, and non-cash accounting charges. This calculator builds EBITDA from your income statement: take revenue, subtract COGS and operating expenses to get operating income, then add back depreciation and amortization. The result is a number that lets you compare the core operating performance of companies regardless of how they are capitalized, where they pay taxes, or how old their asset base is.

Lenders, private equity buyers, and valuation analysts rely on EBITDA heavily. It is the basis for most small and mid-market business valuations, typically expressed as a multiple of EBITDA. A business generating $2 million in EBITDA that sells at a 5x multiple fetches $10 million. Banks use EBITDA to size debt facilities, often lending 2 to 3 times EBITDA. Because it removes interest and taxes, EBITDA shows the cash-generating power of the operations themselves, which is what a buyer or lender is actually acquiring.

EBITDA is not the same as cash flow. It ignores working capital changes, capital expenditures, and the actual cash cost of replacing assets. To see true cash generation, pair this with our Cash Flow Calculator. For the bottom-line profit after everything, use our Net Profit Margin Calculator. And to understand how your operating profit compares to your investment base, our ROI Calculator covers return on invested capital.

Inputs Required

• Revenue: Total sales for the period you are analyzing (monthly, quarterly, or annual)
• Cost of Goods Sold (COGS): Direct costs of producing goods or delivering services
• Operating Expenses (SG&A): Sales, general, and administrative expenses, including rent, salaries, marketing, and insurance
• Depreciation: Non-cash expense reflecting wear on physical assets like equipment and buildings
• Amortization: Non-cash expense reflecting wear on intangible assets like patents and software licenses

Outputs Provided

• EBITDA: Operating income plus depreciation and amortization
• EBITDA Margin: EBITDA divided by revenue, expressed as a percentage
• Gross Profit: Revenue minus COGS
• Operating Income (EBIT): Gross profit minus operating expenses, before interest and taxes
• Full Build Up: Step by step walk from revenue to EBITDA

How the Calculation Works

The logic is that depreciation and amortization are non-cash charges. They reduce reported profit but do not remove cash from the business in the current period. By adding them back, EBITDA approximates the cash earnings power of the operations before financing costs (interest), government take (taxes), and the accounting allocation of prior capital investments (D&A). It is a proxy for operating cash generation, not a precise measure of it.

Some people calculate EBITDA starting from net income instead of operating income. That version adds back interest and taxes as well: EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization. Both methods should produce the same number if your income statement is consistent. This calculator uses the top-down approach because it is clearer and less prone to error from one-time items buried below the operating line.

How to Use the Calculator

1. Pull your income statement for the period you want to analyze
2. Enter total revenue at the top
3. Enter COGS, which appears right below revenue on most income statements
4. Enter total operating expenses (SG&A). Exclude interest and taxes, which are reported separately
5. Enter depreciation and amortization. These often appear as a separate line or in the notes to the financial statements
6. Review the EBITDA figure and the EBITDA margin, and check the build up to confirm each step

Example Calculations

Example 1: Manufacturing Company

A manufacturer reports $5 million in annual revenue, $2.8 million in COGS, $1.2 million in operating expenses, $300,000 in depreciation, and $50,000 in amortization. Gross profit is $2.2 million. Operating income is $1.0 million. EBITDA is $1.35 million. EBITDA margin is 27%. If a buyer offers a 4x EBITDA multiple, the enterprise value is $5.4 million. The margin tells the buyer this is a reasonably profitable manufacturer, above the roughly 10% margin that signals a healthy operation for most businesses.

Example 2: Software Company

A SaaS company reports $3 million in revenue, $900,000 in COGS (hosting and support), $1.5 million in operating expenses (engineering and sales), $200,000 in depreciation, and $100,000 in amortization of acquired customer contracts. Gross profit is $2.1 million. Operating income is $600,000. EBITDA is $900,000. EBITDA margin is 30%. Software companies with system and application products averaged around 36% EBITDA margins in NYU Stern's January 2026 sector data, so this company is slightly below the sector benchmark but solidly profitable.

Real World Scenarios

Valuing a Business for Sale

An owner of a distribution business wants to sell. Revenue is $12 million, COGS is $9 million, operating expenses are $2 million, and D&A is $400,000. EBITDA is $1.4 million, a 11.7% margin. A business broker says distribution companies in this region trade at 3.5x to 4.5x EBITDA. At the midpoint of 4x, the enterprise value is $5.6 million. The owner realizes that improving EBITDA margin by even one percentage point (adding $120,000) increases the sale price by $480,000 at a 4x multiple. She spends the next year cutting $120,000 in operating costs before going to market, effectively turning $120,000 of savings into nearly half a million in exit value.

Comparing Two Acquisition Targets

A private equity firm is comparing two targets. Target A has $10 million revenue and $1.8 million EBITDA (18% margin). Target B has $10 million revenue and $1.5 million EBITDA (15% margin). On the surface, Target A is more profitable. But Target A carries $5 million in debt and operates in a high-tax state, while Target B is debt-free and in a low-tax jurisdiction. EBITDA strips out both differences, which is exactly why the firm uses it. The 3-point margin gap reflects real operating efficiency, not financing or tax artifacts. The firm pursues Target A, then plans to refinance the debt post-close.

Sizing a Bank Loan

A company needs $3 million to acquire a competitor. Its EBITDA is $1.2 million. The bank's lending policy caps total debt at 3x EBITDA, so the maximum loan is $3.6 million. The requested $3 million fits within the limit at 2.5x leverage. The bank also checks debt service coverage: if the loan carries a 10% rate over 5 years, annual debt service is about $791,000. EBITDA covers this 1.5 times, which most banks consider acceptable (they typically want at least 1.25x coverage). The EBITDA figure is the single input that drives both the loan size and the coverage test.

Common Mistakes to Avoid

• Treating EBITDA as cash flow: EBITDA ignores working capital needs and capital expenditures. A company can show strong EBITDA while burning cash if receivables grow or equipment needs replacing. Always check actual cash flow alongside EBITDA
• Forgetting one-time adjustments: EBITDA often gets adjusted for non-recurring items (owner salary above market, legal settlements, restructuring). These "adjusted EBITDA" figures can be manipulated. Document every adjustment and question aggressive add-backs
• Comparing across very different industries: A 15% EBITDA margin is strong in grocery retail but weak in software. Always benchmark against your specific sector. NYU Stern's Damodaran dataset, updated January 2026, shows EBITDA margins ranging from about 5% in grocery to over 35% in software and utilities
• Ignoring the depreciation reality: Adding back depreciation assumes the assets do not need replacing. For asset-heavy businesses like manufacturing or trucking, depreciation reflects a real future cash outflow. EBITDA overstates sustainable cash flow for these companies

Limitations of This Calculator

This calculator computes unadjusted EBITDA from five income statement inputs. It does not handle adjusted EBITDA (add-backs for owner compensation, one-time legal costs, restructuring charges, or non-recurring revenue). It does not compute EBITDA from net income, which requires adding back interest and taxes. It does not account for stock-based compensation, which some analysts add back and others treat as a real expense. The EBITDA margin benchmark ranges referenced are directional, drawn from public company data, and may not match private company results in your specific niche. For valuation, lending, or transaction work, have a CPA or M&A advisor review the figures and adjustments.

Authoritative Research & Resources

• Investopedia - EBITDA - A comprehensive reference defining EBITDA, explaining the formula, and covering the criticisms of the metric as a cash flow proxy.
• NYU Stern - Damodaran Margin Data by Sector (January 2026) - Professor Aswath Damodaran's regularly updated dataset of operating and EBITDA margins by industry, the standard reference for sector benchmarking.
• Corporate Finance Institute - EBITDA Guide - A finance-focused explanation of EBITDA, its use in valuation multiples, and the common adjustments made in M&A transactions.