What is EBITDA?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a widely used financial metric that measures a company's operational profitability by excluding non-operating expenses. Unlike Net Profit, which can be influenced by accounting decisions and tax environments, EBITDA provides a clearer picture of the core business performance and cash flow generation potential.
What is an EBITDA Calculator?
An EBITDA calculator is a digital tool designed to compute a company's operating earnings. By inputting key revenue and expense figures, it automatically subtracts operating costs to arrive at the EBITDA value and calculates the EBITDA Margin percentage. This metric is crucial for investors comparing companies within the same industry.
EBITDA Calculation Formula
The calculator derives EBITDA by subtracting operating expenses from total sales revenue.
The Formula:
- EBITDA = Sales - (Raw Material + Employee Costs + Other Operating Expenses)
- EBITDA Margin (%) = (EBITDA / Sales) × 100
Calculation Example
Consider a manufacturing company with the following annual figures:
- Sales: ₹1,00,000
- Raw Material Cost: ₹25,000
- Employee Costs: ₹45,000
- Other Expenses: ₹10,000
- Total Expenses = ₹80,000
- EBITDA = 1,00,000 - 80,000 = ₹20,000
- EBITDA Margin = (20,000 / 1,00,000) × 100 = 20%
How to Use Finzony’s EBITDA Calculator?
- Enter Sales: Input the total revenue generated from the sale of goods or services.
- Enter Costs: Input the cost of raw materials and employee salaries/wages.
- Enter Other Expenses: Input utilities, rent, and other operational costs (excluding interest/taxes).
- Calculate: Click the button to see your EBITDA Value and Margin percentage instantly.
Why Calculate EBITDA?
- Performance Benchmarking: Compare profitability against competitors regardless of their capital structure.
- Cash Flow Proxy: Often used as a quick estimate of cash flow from operations.
- Valuation: Essential for calculating valuation ratios like EV/EBITDA.
- Business Health: A negative EBITDA indicates fundamental operational issues.
Frequently Asked Questions
Is EBITDA the same as Net Profit?
No. Net Profit subtracts interest, taxes, depreciation, and amortization. EBITDA ignores these to focus purely on operating performance.
What is a good EBITDA margin?
It varies by industry. For retail, 10% might be good, while for software (SaaS) companies, 40%+ is often expected. Generally, a higher margin indicates better efficiency.
Why are Depreciation and Amortization excluded?
D&A are non-cash accounting entries. Excluding them helps investors see how much actual cash the core business is generating before capital expenditures.