Our EBITDA Calculator is designed to help you calculate earnings before interest, taxes, depreciation and amortization. This little digital gizmo will assist you determine the operating profit of your company. This is an indicator just like **EBIT** which was made to grade the efficiency of a company.

It is a widely used indicator in accounting and finance, to measure a company’s profit including all income and expenses (operating and non-operating) while excluding the income tax expenses and interest expenses.

Interesting right? Continue reading! In this article, you will get to know more about this topic and you will understand the basic concepts: EBITDA formula, How do you calculate it and what is meant by EBITDA multiple?

## What is EBITDA?

It is much like EBIT. In other words, this is the same as EBIT but extended by financial indicators like Depreciation and Amortization. The precise EBITDA definition is like: The measure of income before applying Interest, Taxes, Depreciation and Amortization.

It is designed to find the operating profit of given firm before subtraction of interest, taxes and, as we have already mentioned above, depreciation and amortization.

EBITDA meaning: a measure which enables the user to grade the efficiency of firms and also to compare them, even if the companies are operating in different tax system with altered financial strategies.

## EBITDA Formula:

There are many metrics accessible to measure profitability. With this EBITDA calculator, you will be able to measure the earning potential of a company. When calculating profitability, you need to exclude some of the factors such as debt financing, amortization expenses and depreciation.

Two formulas can be used for calculating this process. The starting point for the first formula is operating income, while the second one proceeds with net income. Both formulas have their merits and demerits.

The first formula is expressed as:

**EBITDA = The operating profit + depreciation and amortization**

**Operating profit** is a firm's profit after deduction of operational expenses or the costs allocated for running the daily business. Operating profit benefits investors to determine the income generated for the firm's operating performance by eliminating interest and taxes.

## How to calculate EBITDA?

An example: Just assume, a company that made their income statement having:

Operating profit = 4 million $

The depreciation was $120 million, but the $4 million in operating income doesn’t include the $141 million in depreciation. For calculation, the depreciation and amortization are to be added.

120 million + 4 million $ = 124 million $

### Second Method:

It can also be measured by using net income with the addition of interest, taxes, depreciation, and amortization, expressed as:

Net profit + interest + taxes + depreciation + amortization

**An example:** An enterprise has a net profit of $5,500, the expense on interest is $3,500, taxes of $4,500, depreciation expense of $2,000 and amortization expense of $2,500.

$5,500 + $3,500 + $4,500 + $2,000 + $2,500 = $18,000

**OR you can benefit from our EBITDA calculator**, all you need to do is put the required values in the boxes; the revenue, expense, amortization and depreciation. That’s it! Sounds neat, after you enter these values our calculator will provide the required value for you with precision and speed.

## The EBITDA multiple:

When you search for information regarding the process in question, you might encounter this multiple. It is, to be specific, another indicator, but it is important as these are strictly related.

It is also termed as Firm’s multiple and it aids the investors to rate the value of the company. With its help, investors can decide not to invest if the desired company is undervalued (having low ratio) or overvalued (only possible with high ratio).

To calculate this multiple, we need the value of earnings before interest, taxes, depreciation and amortization and the enterprise value of a company.

## Summary

EBITDA calculator can be utilized for the analysis and comparison of profitability among different earnings before interest, taxes, depreciation and amortization industries as it removes the effects of decisions regarding finance and accounting.

There are some limitations regarding the calculation methods and the distortions caused by not including the depreciation. If the calculation method remains constant from year to year, this tool can prove to be very useful indicator for comparing historical performances.

We hope that this article will help you develop the basis of relevant calculation and comparing the efficiency of those companies that you are looking to invest.