---
title: "EBITDA"
description: "What EBITDA means, the two ways to calculate it from net income or operating profit, what EBITDA margin shows, and why EBITDA is not the same as cash flow."
canonical: https://ledgeriano.com/glossary/ebitda
language: en
publisher: "Ledgeriano"
updated: 2026-11-06
---

# EBITDA

> What EBITDA means, the two ways to calculate it from net income or operating profit, what EBITDA margin shows, and why EBITDA is not the same as cash flow.

EBITDA stands for earnings before interest, taxes, depreciation and amortization. It is operating profit with depreciation and amortization added back, used to compare the operating performance of businesses with different financing, tax positions and asset ages. It is a non-GAAP measure: IFRS and US GAAP do not define it.

EBITDA can be built from the bottom up (net income plus income tax, interest, depreciation and amortization) or from operating profit (EBIT plus depreciation and amortization). Lenders use it for leverage covenants such as debt divided by EBITDA, and buyers often price businesses as a multiple of it.

Its limits are real. EBITDA ignores the cash needed to replace equipment, the cash tied up in [working capital](https://ledgeriano.com/glossary/working-capital) and the interest that must be paid. A business with high EBITDA and heavy capital spending can still run out of cash, so read it next to the [cash flow statement](https://ledgeriano.com/glossary/cash-flow-statement).

```
EBITDA = Net income + Income tax + Interest + Depreciation + Amortization
EBITDA = Operating profit (EBIT) + Depreciation + Amortization
EBITDA margin % = EBITDA / Revenue × 100
```

## Example: calculating EBITDA

A manufacturer reports net income of 120,000, income tax of 30,000, interest of 20,000, depreciation of 45,000 and amortization of 5,000. EBITDA is 120,000 + 30,000 + 20,000 + 45,000 + 5,000 = 220,000. On revenue of 1,100,000 the EBITDA margin is 20%.

### Is EBITDA the same as operating cash flow?

No. Operating cash flow also reflects changes in receivables, inventory and payables, and taxes and interest actually paid. EBITDA does neither.

### What is a good EBITDA margin?

It varies by industry. Compare margins only within the same sector and look at the trend over several years.

Guide: https://ledgeriano.com/guides/management-accounting