EBITDA Calculator

What Is EBITDA?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It measures the operating performance of a business by stripping out financing decisions, tax strategies, and non-cash accounting entries. What remains is a cleaner view of how much cash the core business generates.

Lenders use it to evaluate loan applications. Investors use it to compare businesses across industries. Business buyers use it as the starting point for valuation. If you are seeking financing, bringing in a partner, or thinking about selling your business, EBITDA is a number you need to know.

The Formula

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

Why Each Item Gets Added Back

Interest expense reflects how a business is financed, not how it operates. Two identical businesses with different debt levels will have different interest expenses, which makes net income an unreliable comparison. Adding interest back removes that distortion.

Income taxes vary based on business structure, location, and tax strategy. Adding them back allows comparison of operating performance independent of tax decisions.

Depreciation and amortization are non-cash expenses. When you buy a piece of equipment, the cash leaves immediately but the expense is spread over the asset's useful life on the income statement. Adding these back reflects the actual cash-generating ability of the business more accurately.

A Worked Example

A plumbing supply distributor has the following financials:

  • Net income: $210,000

  • Interest expense: $48,000

  • Income taxes: $74,000

  • Depreciation: $95,000

  • Amortization: $18,000

EBITDA = $210,000 + $48,000 + $74,000 + $95,000 + $18,000 = $445,000

How EBITDA Is Used in Valuation

Most small and mid-size businesses sell for a multiple of EBITDA. The multiple varies by industry, growth rate, and business quality, but common ranges are 3x to 6x for small businesses and higher for faster-growing or more scalable companies. A business generating $445,000 in EBITDA might be valued anywhere from $1.3 million to $2.7 million depending on industry and circumstances.

This is why business owners who are thinking about an eventual sale should track EBITDA carefully and work to grow it consistently over time.

Starting point
Net income
$
Add-backs
Interest expense
$
Income taxes
$
Depreciation
$
Amortization
$
Net income
$210,000
EBITDA
$445,000
Estimated valuation range (based on EBITDA multiples)
3x multiple
$1,335,000
4x multiple
$1,780,000
6x multiple
$2,670,000

EBITDA vs. Cash Flow

EBITDA is not the same as free cash flow. It adds back depreciation but does not account for capital expenditures — the actual cash spent replacing or expanding equipment and infrastructure. A business that spends heavily on equipment each year may show strong EBITDA but generate very little actual free cash. For a more complete picture, look at EBITDA minus capital expenditures, sometimes called unlevered free cash flow.