EBITDA calculator: from revenue or net income

Two ways to calculate it

Example: ₹100 of revenue, ₹40 of cost of goods and ₹35 of other operating costs gives ₹25 of EBITDA, a 25% margin. Starting from ₹10 of net income and adding back ₹3 of interest, ₹4 of taxes, ₹5 of depreciation and ₹3 of amortisation gives the same ₹25.

• Top down: revenue − cost of goods sold − operating expenses (excluding depreciation and amortisation).
• Bottom up: net income + interest + taxes + depreciation + amortisation.

Why it matters

Buyers and lenders often value profitable businesses as a multiple of EBITDA and set loan covenants against it. The EBITDA margin shows how efficiently a business turns revenue into operating profit, and comparing it with peers shows whether costs are in line.

Its limits

EBITDA ignores capital spending, working capital and the real cost of debt, so a business can show strong EBITDA while burning cash. "Adjusted EBITDA" figures, which add back further costs, deserve particular care. Look at free cash flow alongside it.

EBITDA and other profit measures

Each measure answers a different question. Investors usually look at several together: EBITDA for operating performance, net income for what is left for shareholders, and free cash flow for whether the business funds itself.

• Gross profit: revenue minus the direct cost of what you sell.
• EBITDA: gross profit minus operating costs, before depreciation and amortisation.
• EBIT (operating profit): EBITDA minus depreciation and amortisation.
• Net income: what is left after interest and tax.
• Free cash flow: cash generated after capital spending and changes in working capital.