EBITDA calculator

What the letters stand for

EBITDA is short for earnings before interest, tax, depreciation and amortisation. Read it as a deliberate undoing: start from a profit figure and strip away the four items whose size has more to do with how a firm is financed, how it is taxed and how it has chosen to depreciate its assets than with how the trading business is performing. What is left is an approximation of the cash the operations generate in a period, before working capital and capital spending come in.

EBIT is one step inside EBITDA: earnings before interest and tax, with depreciation and amortisation subtracted. Operating profit in an Indian statement of profit and loss tends to line up closely with EBIT, so this page computes both and shows D and A as the gap between them.

The two build directions

The up direction starts from the bottom line and adds the stripped items back. Net profit plus tax plus interest gives EBIT; EBIT plus depreciation and amortisation gives EBITDA. This is the practical reading when you have a published statement open and only want a quick build.

The down direction starts from the top. Revenue minus cost of goods sold minus operating expenses (with depreciation and amortisation held back) gives EBITDA. Then EBITDA minus D and A gives EBIT. This is the reading when you are building a model and want to see the cost structure explicitly, line by line.

Done on the same company the two routes should agree to the rupee, and this page uses that as its sanity check. The sample above does both and reaches the same ₹1 crore from either side.

Worked example on a sample company

Figures are illustrative. Call this Sample Company A. Revenue ₹5,00,00,000; cost of goods ₹3,00,00,000; operating expenses excluding D and A ₹1,00,00,000; depreciation and amortisation ₹20,00,000; finance costs ₹10,00,000; tax ₹20,00,000. Down route: 5 - 3 - 1 = ₹1 crore EBITDA. Minus D and A gets EBIT of ₹80 lakh. Minus finance costs gets profit before tax of ₹70 lakh. Minus tax gets a net profit of ₹50 lakh.

Up route from the same figures: 50 + 20 + 10 + 20 = ₹1 crore EBITDA. The two routes close.

EBITDA margin and EV over EBITDA

The EBITDA margin is EBITDA divided by revenue, as a percentage. It compresses the top three lines of the profit and loss into a single reading of pricing power and cost structure. On the sample above the margin is 20 per cent.

EV over EBITDA is the enterprise value of a firm divided by its EBITDA. Enterprise value is market capitalisation plus net debt, so it is a measure of what a buyer would pay for the whole business; EBITDA is a measure of the annual operating cash flow before capital items. The ratio has no units: a reading of 10 means the enterprise value is ten times EBITDA. On the sample above a hypothetical enterprise value of ₹10 crore gives EV over EBITDA of 10 times.

This page does the arithmetic and prints the number. Reading what it says against peers in the same industry is a separate exercise that the course block at the foot of the page points to.

What EBITDA leaves out

EBITDA is not operating cash flow. It ignores changes in working capital, which can swing cash in and out of the business between periods even when the profit and loss reads the same.

It also ignores capital expenditure. A business that needs steady reinvestment to keep its fleet, factory or software current will show a flattering EBITDA and a far thinner free cash flow. This matters most in asset-heavy industries. For an asset-light firm the gap is smaller, but it never vanishes.

It ignores interest. Two companies with the same EBITDA and the same EBIT can carry very different debt loads, and the one carrying more interest expense will have a smaller net profit and much less room when rates rise.

It ignores tax, which is itself a real cash charge on the business, and it ignores one-off items unless the user keeps those outside the inputs. The calculator does not strip exceptional items; the reader does that before entering the figures.

EBITDA and Indian accounting

Indian companies prepare their statement of profit and loss under Ind AS (for listed and larger companies) or Indian GAAP (Accounting Standards notified under the Companies Act 2013), and the layout in both uses Schedule III. Schedule III lists expenses by nature: cost of materials consumed, purchases of stock in trade, changes in inventories, employee benefits, finance costs, depreciation and amortisation, and other expenses. Neither Ind AS nor the Schedule III format defines EBITDA as a line to be printed on the face of the statement. It is a non-GAAP measure, read off the published numbers by the analyst or the reader.

What that means in practice is straightforward: a company's reported profit figure, say profit before tax, is defined by the standards, but its EBITDA is not. Two readers can build the same company's EBITDA slightly differently because one included a restructuring charge in operating expenses while the other treated it as exceptional. Always note which items the build has excluded.

Who this calculator is meant to help

A commerce student checks a homework sum or reads a case from a textbook. An investor reading a listed company's annual report runs the down route on the top of the statement of profit and loss to get the operating figure that the filing itself leaves off the page. A small business owner preparing a management pack uses the up route to produce a one-line summary for lenders. An accountant preparing a board presentation uses both routes as a check on the other, because the two should tie to the rupee.

Frequently asked questions

Courses that teach the subject behind the eBITDA calculator