**EBITDA Formula (Table of Contents)**

## What is the EBITDA formula?

The term “EBITDA” is the abbreviation for Earnings before interest, tax and depreciation & amortization and as the name suggests, EBIDTA refers to the company’s earnings before deduction of interest, tax, and depreciation & amortization. The formula for EBITDA can be derived by adding back interest, tax and depreciation & amortization to the net income. Mathematically, it is represented as,

**EBITDA = Net Income + Interest + Tax + Depreciation & Amortization**

**Examples of EBITDA Formula (With Excel Template)**

Let’s take an example to understand the calculation of EBITDA in a better manner.

#### EBITDA Formula – Example #1

**Let us take the example of ABC Ltd to calculate its EBITDA. ABC Ltd is engaged in the business of soft drinks manufacturing in the city of Lumberton, North Carolina (USA). As per the annual report published recently, the company has clocked a turnover of $250,000. The information is available from the income statement.**

**Calculate ABC Ltd.’s EBITDA during the financial year based on the given information.**

**Solution:**

EBITDA is calculated using the formula given below.

**EBITDA = Net Income + Interest + Tax + Depreciation & Amortization**

- EBITDA = $80,000 + $15,000 + $5,000 + $20,000
- EBITDA =
**$120,000**

Therefore, ABC Ltd generated EBITDA of $120,000 during the year.

4.9 (3,296 ratings)

View Course

#### EBITDA Formula – Example #2

**Let us take the real-life example Bombardier Inc. to calculate EBITDA. As per the annual report published for the year ending December 31, 2018, the following information is made available from the income statement.**

**Calculate Bombardier Inc.’s EBITDA during the financial year based on the given information.**

**Solution:**

EBITDA is calculated using the formula given below.

**EBITDA = Net Income + Financing Expense + Tax + Depreciation & Amortization**

- EBITDA = $318 + $721 + $77 + $272
- EBITDA =
**$ 1,388 million**

Therefore, Bombardier Inc.’s made EBITDA of $1,388 million during the year.

#### EBITDA Formula – Example #3

**Let us take another real-life example of Apple Inc. Based on the latest annual report for the year ending on September 29, 2018, the information is available. Calculate net income based on the information, Then calculate Apple Inc.’s EBITDA if interest expense and depreciation & amortization expense are $3,240 million and $10,903 million respectively.**

**Solution:**

Net Income is Calculated as:

- Net Income = $265,595 – $163,756 – $14,236 – $16,705 + $2,005 – $13,372
- Net Income =
**$59,531 million**

EBITDA is calculated using the formula given below.

**EBITDA = Net Income + Interest + Tax + Depreciation & Amortization**

- EBITDA = $59,531 + $3,240 + $13,372 + $10,903
- EBITDA =
**$87,046 million**

Therefore, Apple Inc. generated income of $59,531 million and EBITDA of $87,046 million during the year.

### Explanation

The formula for EBITDA can be derived by using the following steps:

**Step 1:**

Firstly, determine the net income of the company during the year which is easily available as a line item in the income statement.

**Step 2:**

Next, figure out the interest expense incurred by the company which is usually reported as a finance cost in the income statement. It is computed as the product of the interest rate and the outstanding debt.

**Step 3: **

Next, determine the income tax paid during the year and it is computed as the product of effective corporate tax rate and the income before tax. It is also reported as a line item in the income statement.

**Step 4: **

Next, determine the depreciation & amortization expense on the tangible and intangible assets respectively. It is also easily available in the income statement.

**Step 5:**

Finally, the formula for EBITDA can be derived by adding interest (step 2), tax (step 3) and depreciation & amortization (step 4) to the net income (step 1) as shown below.

**EBITDA = Net income + Interest + Tax + Depreciation & Amortization**

### Relevance and Uses of EBITDA Formula

From the perspective of a financial analyst, EBITDA is one of the most important metrics as it helps in assessing the performance of the company in terms of its operating profit. EBIDTA primarily focuses on the core operations of the company while it excludes the impact of other non-operating activities. Examples of such non-operating activities include interest expense, taxes paid and depreciation & amortization expense. In fact, a company can improve its financial performance by emphasizing on the operating profitability which is entirely dependent on the company. As such, EBITDA or operating profit is such a significant metric as a singular measure of performance. However, it must be kept in mind that EBITDA analysis should be done among companies in the same industry (similar accounting) and of the scale (similar tax bracket), otherwise the analysis would not result in any meaningful outcome.

### EBITDA Formula Calculator

You can use the following EBITDA Formula Calculator

Net Income | |

Interest | |

Tax | |

Depreciation & Amortization | |

EBITDA | |

EBITDA = | Net Income + Interest + Tax + Depreciation & Amortization | |

0 + 0 + 0 + 0 = | 0 |

### Recommended Articles

This is a guide to EBITDA Formula. Here we discuss how to calculate EBITDA along with practical examples. We also provide an EBITDA calculator with a downloadable excel template. You may also look at the following articles to learn more –