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Financial metrics glossary

EBITDA: definition, formula and example

EBITDA is a company's earnings before interest, taxes, depreciation and amortization. It is the operating result with depreciation and amortization added back, and it compares the profitability of operations without the effects of financing, tax and past investment.

Updated

Formula

  • EBITDA = Operating profit (EBIT) + Depreciation + Amortization
  • EBITDA = Net income + Interest + Taxes + Depreciation + Amortization
  • EBITDA margin = EBITDA ÷ Revenue × 100%

Worked example

Sample

SAMPLE · Northbridge Analytics, September 2026

Northbridge Analytics, the fictional software company in the Financial Analyst's public sample, for September 2026. The operating result is the one its report prints; the depreciation is the charge its books post for computer equipment, inside general and administrative expenses:

Line September 2026
Revenue $163,156
Operating result (EBIT) −$62,146
Depreciation of computer equipment $1,020
Amortization (no intangible assets in the books) $0
  1. EBITDA = −$62,146 + $1,020 + $0 = −$61,126
  2. EBITDA margin = −$61,126 ÷ $163,156 × 100% = −37.5%

EBITDA, September 2026: −$61,126

The sample's books carry no interest and no income tax, so its net income equals its operating result and the two EBITDA formulas give the same figure. The sample workspace's business model shows the same EBITDA.

How to read it

  • EBITDA is not cash flow. It ignores money spent on equipment and other long-lived assets, cash tied up in receivables and inventory, interest and tax — all of which leave the bank.
  • The add-back only means something when depreciation and amortization are in the books. Depreciation is usually booked inside cost of sales or operating expenses; when the books carry none, EBITDA equals the operating result.
  • Depreciation spreads the cost of an asset already paid for, which is why it is added back. A business that must keep replacing equipment still pays for it, so read EBITDA next to what is spent on equipment.
  • EBITDA is not defined by accounting standards. “Adjusted EBITDA” adds back further items the company chooses, so check which add-backs a figure includes before comparing it with another.

Original research: Financial benchmarks for small US public companies, by industry →

Where it shows up in the monthly management report

The report's P&L summary ends at the operating result — revenue less direct costs and operating expenses — set against the prior month, the same month last year and the plan.

The Financial Analyst calls a line EBITDA only when depreciation is read from the books. When the books do not show depreciation separately, the line is named the operating result instead of being presented as EBITDA.

  • Open the sample workspace — a fictional company's books, worked by the Financial Analyst, with its monthly report. No signup.
  • The Financial Analyst — what it reads from your accounting system, what the report contains and what it costs.

Frequently asked questions

What is the difference between EBITDA and EBIT?

EBIT — operating profit — is earnings before interest and taxes, with depreciation and amortization already charged. EBITDA adds depreciation and amortization back, so it is never lower than EBIT.

Is EBITDA the same as operating cash flow?

No. Operating cash flow also counts changes in working capital — customers paying later, bills paid sooner — and the tax actually paid. A company can show positive EBITDA while its cash falls.

Can EBITDA be negative?

Yes. When operating costs exceed revenue even before depreciation and amortization, EBITDA is negative: the operations lose money before any charge for past investment.

What is an EBITDA margin?

EBITDA divided by revenue, as a percentage. It shows how much of each dollar of revenue is left as EBITDA and makes companies of different sizes comparable.