## Defining the EBITDA Calculator

To understand the calculator, let’s have a closer look at EBITDA.

### What is EBITDA?

EBITDA stands for ‘earnings before interest, taxes, depreciation and amortization’. It helps understand the overall performance of a company – sometimes so much that it may even be used as a substitute for net income.

In basic words, EBITDA helps obtain an overview of the profitability of a firm while eliminating factors that can hinder the image of the actual growth of a company. It portrays potential earnings, without considering the factors of interest, taxes, depreciation and amortization.

Now, what exactly are the four factors omitted?

### Interest

When a person or company borrows money from a lender, the borrower may have to pay an amount in addition to the original amount borrowed. This additional amount is referred to as “interest”, and is levied at a specific rate.

### Taxes

Tax is the amount of money imposed by the government (as a percentage). It is compulsory for everyone eligible to pay it, and by doing so, they give their share to the revenue of the state.

### Depreciation

Depreciation refers to the decrease in the value of assets owned by the company. Like the other factors involved, it obscures the view of the actual progress and capability of a firm.

### Amortization

Amortization is the method used to decrease the value of a debt or asset over time. It focuses on distributing the payment of loan over a period of time, and the depreciation of assets.

### What is the limitation of EBITDA?

At times, EBITDA is not the best measure of efficiency. This is because it does not take into consideration any capital investments or debt. An example of capital investment is the cost involved in purchasing property, and debt refers to any loans taken by the firm or company.

## The formula for calculating EBITDA

EBITDA can be calculated using a series of formulas. The first one is based on net income, such that:

**EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization**

In this formula, the rest of the parameters have been discussed earlier except one: Net Income. The net income of a company is the business or firm’s income less several factors, such as expenses and depreciation. It can be represented as a formula as:

**Net income = Total income - (depreciation + amortization + goods sold + expenses + interest + taxes)**

The other formula of EBITDA is similar to the first with a slight variation:

**EBITDA = Operating profit + Amortization + Depreciation**

Here, the operating profit refers to the profits made before interest and taxes have been deducted. This is essentially the same as the first equation, with the only difference being that net profit, interest and taxes are laid out separately in the first equation, and are condensed into the single term “operating profit” in the second equation.

## Uses of EBITDA

EBITDA has several uses. It determines the profitability of a company or firm without any obstructions.

Additionally, it can be used to make comparisons amongst companies and decipher the faster-progressing ones.

It is also used to obtain an idea of the money available to pay off debts and loans over a span of time.

## How to calculate EBITDA?

If you’re performing manual calculations, EBIDTA can be found using one of the two equations stated earlier. However, you’d want to collect information on all the parameters involved before you start your calculation.

Alternatively, you can use our calculator. For that, you’d have to provide the relevant fields required, including:

• Revenue – This is the income of the concerned company

• Operating expenses

• Amortization

• Depreciation

You are required to fill in the required fields, and our calculator will perform its magic and give you the answer in dollars within seconds. If in doubt – give it a try!

## EBITDA, EBIT & EBT– what’s the difference?

Closely related to EBITDA are two other terms you’ve probably come across: EBIT and EBT.

EBT is the ‘earnings before tax’. This refers to the income of a firm or company before any imposed taxes are subtracted from it. This can be portrayed simply as:

**EBT = Net Income + Taxes**

EBIT is basically ‘earnings before interest and taxes’. This means it portrays the income of a company before interest and taxes are deducted, such that:

**EBIT = Net Income + Interest + Taxes**

On the other hand, EBITDA deducts depreciation and amortization in addition to interest and taxes.

## Conclusion

Our EBITDA calculator is a handy tool that will help you understand and estimate the potential of your company without taking into consideration extraneous factors such as depreciation and taxes. It differs from EBT and EBIT in the sense that it deducts more factors than these two.

If you are looking to figure the averages in the industry or to make comparisons amongst several companies, our EBITDA calculator is exactly what you need.

## Resources to Learn more:

- Investopedia – EBITDA – Earnings Before Interest, Taxes, Depreciation, and Amortization
- TheBalance – Understanding the Pros and Cons of EBITDA
- Investopedia – A Clear Look at EBITDA