EBITDA Calculator
Calculate EBITDA from either net income or revenue, build an adjusted figure with add-backs, and see the margin, coverage ratio and implied enterprise value at a multiple.
Last reviewed by the Radiatus Cloud team
Add-backs for adjusted EBITDA
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A measure of operating cash generation
EBITDA adds back interest, tax, depreciation and amortisation to net income. The reasoning is that interest depends on how the company is financed, tax on where it is domiciled, and depreciation on accounting choices about assets bought years ago, so removing all four produces a figure comparable between companies with different capital structures and asset bases. It is the standard basis for leveraged lending covenants and for most private company valuation multiples.
The criticism is fair and worth stating
Charlie Munger called it bullshit earnings, and the objection has substance: depreciation represents assets genuinely being consumed, and a business that must replace equipment cannot spend the depreciation add-back on anything else. For an asset heavy company, EBITDA overstates the cash actually available by roughly the maintenance capital expenditure. It also ignores working capital movements entirely, so a business consuming cash to fund growth can report rising EBITDA while its bank balance falls.
Adjusted EBITDA needs scrutiny
Add-backs for genuinely one-off items are legitimate. Add-backs for restructuring charges that appear every year, for stock compensation that is a real cost of employing people, or for pro forma synergies not yet achieved are how a disappointing number becomes an acceptable one. In lending covenants the permitted add-backs are negotiated in detail precisely because the gap between reported and adjusted EBITDA is where the argument sits.
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Frequently Asked Questions
What is the difference between EBITDA and operating profit?
Operating profit is after depreciation and amortisation; EBITDA adds them back. For a software business the gap is small; for a manufacturer or a fleet operator it can be most of the operating profit.
Why do lenders use EBITDA?
Because it approximates cash available to service debt before financing costs, and because it is comparable across borrowers with different capital structures. Leverage covenants are almost always expressed as a multiple of EBITDA.
What is a reasonable EBITDA margin?
It varies enormously by sector: software commonly 20 to 40 percent, professional services 10 to 20, grocery retail 3 to 6, and heavy industry anywhere in between. Compare only within a sector.
Which add-backs are legitimate?
Genuinely non recurring items: a one-off legal settlement, a single restructuring, transaction costs on a completed deal. Recurring restructuring charges, stock compensation and unachieved synergies are the ones that draw scrutiny and are frequently disallowed in lending documentation.
Why is EBITDA criticised?
Because it treats depreciation as if it were free. A business whose equipment genuinely wears out must replace it, so the add-back is not available to service debt or pay owners. For asset heavy businesses the honest measure subtracts maintenance capital expenditure.
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How to Use
Enter your income statement figures to calculate EBITDA and adjusted EBITDA.
Disclaimer: This tool is provided "as is" without warranty of any kind. Results are for educational and utility purposes.
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