Why is EBITDA criticised?

Because it removes real costs. Interest is owed, tax is owed, and depreciation reflects assets wearing out. It is a comparison tool, not a measure of what the business generated.

Businessfinance

EBITDA Calculator

EBITDA with the gap to net income shown item by item. It is a useful comparison measure and a poor proxy for cash, and the add-backs on this page are why.

Also called: ebitda margin calculator, operating cash proxy.

EBITDA

₹30,00,000

₹30,00,000, a margin of 30%. Net income is ₹14,50,000, and the ₹15,50,000 of difference is the interest, tax, depreciation and amortisation added back.

EBITDA margin

30%

EBIT

₹20,00,000

Net income

₹14,50,000

Total added back

₹15,50,000

Net margin

14.5%

How this is calculated

An estimate, not an offer or a guarantee. Projected returns assume the rate you entered holds for the whole term, which no market does.

Method and background

How this is calculated

EBITDA strips out financing, tax and non-cash charges so two businesses with different capital structures and asset bases can be compared. That is genuinely useful. It is also why it flatters: depreciation is not a real cash cost this year, but it is a real cost of assets that will need replacing, and a business that ignores it will eventually meet the bill. Showing net income alongside keeps both facts in view.

EBITDA = revenue - operating expenses before depreciation and amortisation

R: Revenue (currency)
OpEx: Cash operating expenses (currency)

Worked examples

Each of these is asserted on every build. If a change to the engine ever moved one of these answers, the build would fail before the page could print it.

a thirty percent EBITDA margin

Revenue: ₹1,00,00,000
Operating expenses, excluding depreciation: ₹70,00,000
Depreciation: ₹8,00,000
Amortisation: ₹2,00,000
Interest: ₹4,00,000
Tax: ₹1,50,000

EBITDA₹30,00,000

Worked down the income statement by hand

Open this example

no add-backs makes EBITDA equal net income

Revenue: ₹1,00,00,000
Operating expenses, excluding depreciation: ₹70,00,000
Depreciation: ₹0
Amortisation: ₹0
Interest: ₹0
Tax: ₹0

EBITDA₹30,00,000

boundary

Open this example

expenses above revenue is negative EBITDA

Revenue: ₹10,00,000
Operating expenses, excluding depreciation: ₹15,00,000
Depreciation: ₹0
Amortisation: ₹0
Interest: ₹0
Tax: ₹0

EBITDA-₹5,00,000

degenerate case: a real state, not an error

Open this example

Method and limits

What it assumes

Operating expenses entered exclude depreciation and amortisation.

What it deliberately does not model

Working capital movements and capital expenditure are excluded, so EBITDA is not free cash flow.
Adjusted EBITDA, where further items are added back at management discretion, is a different and softer number.

Formula version 1.0.0 · definition 1.0.0 · India · Report a problem with this calculator

Frequently asked questions

Why is EBITDA criticised?: Because it removes real costs. Interest is owed, tax is owed, and depreciation reflects assets wearing out. It is a comparison tool, not a measure of what the business generated.