EBITDA Calculator
EBITDA built up from net income or down from revenue, with margin, adjusted EBITDA and an honest cash-conversion check — because EBITDA is not cash flow.
EBITDA Calculator: with the default inputs, ebitda is $850,000.
Both routes reach the same number. Top-down is how you build a model; bottom-up is how you read a filing.
Direct costs of delivering the product or service, excluding any depreciation shown inside COGS.
SG&A, R&D, rent, salaries — everything operating except depreciation and amortization.
Used by the bottom-up route.
- EBITDA margin
- 17%
- In words
- EBITDA of $850,000 on $5,000,000 of revenue — a 17% margin. After capex, working capital, interest and tax, $199,700 of it is actually cash.
- Adjusted EBITDA
- $850,000
- Adjusted EBITDA margin
- 17%
- EBIT (operating income)
- $550,000
- EBIT margin
- 11%
- Gross profit
- $2,250,000
- Gross margin
- 45%
- Pre-tax income
- $430,000
- Net income
- $339,700
- Net margin
- 6.79%
- Cash left after capex, working capital, interest and tax
- $199,700EBITDA minus the four things EBITDA ignores. This is the number that pays the bills.
- Cash conversion
- 23.5%That cash figure as a share of EBITDA.
Assumptions
- EBITDA excludes interest, income tax, depreciation and amortization, and nothing else — stock compensation is left in unless you add it as a stated add-back.
- Operating expenses entered top-down must exclude any depreciation reported inside COGS or SG&A, or D&A is double-counted.
- The cash reality check is a simplified free-cash-flow proxy: it uses tax expense rather than cash taxes paid and ignores non-cash working-capital timing.
- EBITDA and adjusted EBITDA are non-GAAP measures with no standard definition.
| Line | Amount | % of revenue |
|---|---|---|
| Revenue | $5,000,000 | 100% |
| Cost of goods sold | -$2,750,000 | -55% |
| Gross profit | $2,250,000 | 45% |
| Operating expenses (ex-D&A) | -$1,400,000 | -28% |
| EBITDA | $850,000 | 17% |
| Depreciation & amortization | -$300,000 | -6% |
| EBIT | $550,000 | 11% |
| Interest | -$120,000 | -2.4% |
| Pre-tax income | $430,000 | 8.6% |
| Income tax | -$90,300 | -1.8% |
| Net income | $339,700 | 6.8% |
EBITDA sits four lines below revenue and four lines above net income. Everything between the two is real money leaving the business.
How this is worked out
The formula
Top-down: EBITDA = revenue − cost of goods sold − operating expenses (excluding D&A) Bottom-up: EBITDA = net income + interest + taxes + depreciation + amortization EBIT = EBITDA − depreciation & amortization EBITDA margin = EBITDA ÷ revenue Adjusted EBITDA = EBITDA + one-off add-backs Cash left = EBITDA − capex − increase in working capital − interest − cash tax
Open How it’s calculated above to see this worked through with your own numbers.
What you enter
- Start from
- Both routes reach the same number. Top-down is how you build a model; bottom-up is how you read a filing.Revenue down (revenue − COGS − operating costs) · Net income up (net income + interest + tax + D&A)
- Revenue
- A number.in dollars · 0 or more · defaults to 5000000
- Cost of goods sold
- Direct costs of delivering the product or service, excluding any depreciation shown inside COGS.in dollars · 0 or more · defaults to 2750000
- Operating expenses (excluding D&A)
- SG&A, R&D, rent, salaries — everything operating except depreciation and amortization.in dollars · 0 or more · defaults to 1400000
- Net income
- Used by the bottom-up route.in dollars · defaults to 339700
- Interest expense
- A number.in dollars · 0 or more · defaults to 120000
- Income tax expense
- A number.in dollars · defaults to 90300
- Depreciation & amortization
- A number.in dollars · 0 or more · defaults to 300000
- One-off add-backs(under More options)
- Restructuring, legal settlements, transaction fees. Every one needs a defence — this is where EBITDA gets abused.in dollars · defaults to 0
- Capital expenditure(under More options)
- What you actually spend keeping and growing the asset base. EBITDA pretends this doesn't exist.in dollars · 0 or more · defaults to 350000
- Increase in working capital(under More options)
- Cash swallowed by growing receivables and inventory. Negative if working capital released cash.in dollars · defaults to 90000
What you get back
- EBITDAmain answer
- EBITDA margin
- In words
- Adjusted EBITDA
- Adjusted EBITDA margin
- EBIT (operating income)
- EBIT margin
- Gross profit
- Gross margin
- Pre-tax income
- Net income
- Net margin
- Cash left after capex, working capital, interest and tax
- EBITDA minus the four things EBITDA ignores. This is the number that pays the bills.
- Cash conversion
- That cash figure as a share of EBITDA.
What this assumes
- EBITDA excludes interest, income tax, depreciation and amortization, and nothing else — stock compensation is left in unless you add it as a stated add-back.
- Operating expenses entered top-down must exclude any depreciation reported inside COGS or SG&A, or D&A is double-counted.
- The cash reality check is a simplified free-cash-flow proxy: it uses tax expense rather than cash taxes paid and ignores non-cash working-capital timing.
- EBITDA and adjusted EBITDA are non-GAAP measures with no standard definition.
About this calculator
EBITDA strips out four things — interest, tax, depreciation and amortization — to show what a business earns from operations before financing decisions, tax jurisdiction and past capital spending get a say. That makes it genuinely useful for comparing two companies with different debt loads or different depreciation policies, and it is the metric almost every acquisition multiple and credit covenant is written against. It is also the most abused number in finance.
Two routes to the same figure
Top-down starts at revenue and subtracts cost of goods sold and operating expenses, taking care to exclude depreciation sitting inside either line. Bottom-up starts at net income and adds back interest, tax and D&A — the route you use when reading someone else's filing, because those four numbers are all disclosed. On the default figures both give $850,000: $5.0m revenue less $2.75m COGS and $1.4m operating costs, or $339,700 of net income plus $120,000 interest, $90,300 tax and $300,000 D&A.
EBITDA is not cash flow
Charlie Munger's line was that every time you see EBITDA you should substitute "bullshit earnings", and the arithmetic backs him up. Four things stand between EBITDA and money in the bank:
- Capex. Depreciation is added back as though it were a paper entry, but the machine really does wear out and really does have to be replaced. Over a full asset cycle, capex and depreciation converge.
- Working capital. A business growing 40% funds its own receivables and inventory out of cash EBITDA never mentions.
- Interest. Excluded so you can compare capital structures — but the lender still has to be paid.
- Cash taxes. Also excluded, also payable.
The cash reality check at the bottom subtracts all four. On the defaults, $850,000 of EBITDA becomes $199,700 of actual cash — a 23% conversion rate. That gap is the whole reason a company can grow EBITDA every quarter and still run out of money.
Adjusted EBITDA, and when to disbelieve it
Adjusted EBITDA adds back items management calls non-recurring: restructuring, litigation, transaction fees, sometimes stock compensation. Some of these are legitimate. Many are not — "one-off" costs that appear every year are just costs, and a company whose add-backs run to 20% of EBITDA is telling you something about itself. The SEC's non-GAAP rules exist precisely because this line gets stretched. When add-backs exceed 15% of EBITDA this calculator says so.
How to read the margin
EBITDA margin only means something against a sector: software runs 25–40%, industrials 12–20%, grocery retail 3–6%, professional services 10–15%. A 17% margin is excellent for a distributor and alarming for a SaaS business. Compare against peers, and compare adjusted against unadjusted to see how much of the story depends on the adjustments.
Frequently asked questions
▸What's the difference between EBIT and EBITDA?
EBIT (operating income) subtracts depreciation and amortization; EBITDA adds them back. EBITDA is more comparable across companies with different asset ages and depreciation policies; EBIT is closer to economic reality because assets genuinely do wear out.
▸Is EBITDA the same as cash flow?
No, and treating it as cash flow is the most common analytical error in finance. EBITDA ignores capex, working capital, interest and cash taxes. A company can grow EBITDA every quarter and still run out of money.
▸What is a good EBITDA margin?
Entirely sector-dependent. Software 25–40%, industrials 12–20%, distribution 4–8%, grocery 3–6%, professional services 10–15%. The only useful comparison is against direct peers and against the same company's own history.
▸Why do acquirers use EBITDA multiples?
Because EBITDA is roughly independent of how the target is financed, and the buyer intends to put its own capital structure in place. It's a fair starting point — but a buyer who doesn't then subtract maintenance capex is overpaying for a business that needs constant reinvestment.
▸Is EBITDA a GAAP measure?
No. EBITDA and adjusted EBITDA are non-GAAP measures. SEC rules require public companies to reconcile them to the nearest GAAP figure and forbid presenting them with more prominence than GAAP results, precisely because the adjustments are discretionary.
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