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EBITDA: what it is, the formula and an example

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is a measure of operating profitability before the effects of financing, taxation, and asset depreciation. It helps assess the efficiency of "core" operations, but it is not a cash flow and does not replace analysis of CapEx and working capital.

What the Metric Measures

It shows the result of operating activities, cleared of interest, taxes, and depreciation/amortization/impairment. It is convenient for comparing businesses with different debt levels, tax regimes, and capital intensity.

Calculation

  • EBITDA = EBIT + Depreciation/Amortization + Impairment (D&A)
  • Alternative from net income: EBITDA = Net income + Taxes + Interest + D&A ± agreed non-operating adjustments
  • EBITDA margin, % = EBITDA / Revenue × 100

For Adjusted EBITDA, define the list of adjustments in advance and disclose them in the notes.

Calculation example

Net profit is 600,000, income tax 132,000, loan interest 168,000 and depreciation 300,000. EBITDA = 600,000 + 132,000 + 168,000 + 300,000 = 1,200,000. With revenue of 8,000,000 the EBITDA margin is 15%.

Data Sources

P&L and general ledger in ERP/1C, depreciation registers and fixed/intangible asset accounting, expense item reference lists, loan agreements (interest), tax registers. A single classification of operating and non-operating items is essential.

Interpretation

  • EBITDA growth — the effect of a better margin or cost optimization
  • EBITDA margin shows the "cushion" for D&A, interest, and taxes
  • Consider covenants: Net Debt/EBITDA, Interest Coverage
  • EBITDA does not account for CapEx and changes in working capital

Useful Breakdowns

  • Products / business lines / regions, sales channels
  • Customer segments (B2B/B2C, new/repeat)
  • Fixed vs variable costs, functions (sales, marketing, support, production)
  • Currencies and FX effects, seasonality and promotions

Dashboard Visualizations

  • Trend of EBITDA and EBITDA margin, % with year-over-year comparison
  • Waterfall/bridge from revenue to EBITDA (COGS, discounts, logistics, SG&A)
  • Margin comparison by segment/channel
  • Net Debt/EBITDA and Interest Coverage indicators with thresholds
  • Plan/actual and forecast to the end of the period

How to Set Goals

Define a target EBITDA margin by segment, limits for SG&A as a % of revenue, and adjustment rules for Adjusted EBITDA. Agree on covenants (Net Debt/EBITDA, Interest Coverage) and maintain a rolling forecast that accounts for prices, mix, FX, and CapEx plans.

Common Mistakes

  • Mixing reported and "Adjusted" EBITDA without disclosure
  • Double-counting depreciation or incorrect adjustments
  • Ignoring the impact of IFRS 16 (leases) on the cost structure
  • Comparing periods without seasonal or FX adjustment
  • Inconsistent classification of operating/non-operating items

Questions for Discussion

  • Which drivers changed EBITDA this period: price, mix, COGS, SG&A?
  • What is the expected margin by the end of the period, and what are the risks to achieving it?
  • Are the Net Debt/EBITDA and Interest Coverage covenants being met?
  • What CapEx and working capital needs stand behind the current EBITDA level?

Questions and answers

What is EBITDA in simple terms?

Profit from core operations before interest, income tax and depreciation — a measure of what the business itself earns regardless of loans and tax regime.

How do you calculate EBITDA?

EBITDA = net profit + income tax + interest + depreciation and amortization. Or: operating profit (EBIT) + depreciation and amortization.

What is EBITDA margin?

EBITDA margin, % = EBITDA / revenue × 100. It is used to compare the profitability of companies of different size and debt structure.