💪 EBITDA Calculator

EBITDA adds depreciation and amortization back to operating profit, approximating the cash earnings of the business. With $2.4 million of revenue, $1.3 million of COGS, $585,000 of operating expenses, and $95,000 of D and A, EBITDA is $515,000, a 21.5 percent margin. Buyers and lenders quote it constantly because it strips out the accounting charges that vary most between companies.

How to Use This Calculator

Enter revenue, COGS, operating expenses excluding depreciation and amortization, and the D and A figure. The calculator returns EBITDA plus the implied EBIT, so you see exactly what the add-back contributes.

The Formula

The logic: depreciation and amortization allocate past capital spending across years but spend no cash today, so adding them back approximates cash operating earnings. It is an approximation, not a measurement, because it also ignores working capital swings, taxes, and the future capex needed to replace the depreciating assets.

Worked Example

Revenue $2,400,000, COGS $1,300,000, operating expenses excluding D and A of $585,000, D and A of $95,000. EBITDA = 2,400,000 - 1,300,000 - 585,000 = $515,000. The implied EBIT is $420,000, so the add-back contributes $95,000, or 18 percent of EBITDA. Margin is 21.5 percent. A buyer paying a 6x multiple values the operations at $3,090,000 on this figure.

What EBITDA Hides

Adjusted EBITDA

Deal EBITDA is rarely the raw number. Sellers add back "one-time" expenses, owner perks, and above-market salaries to present adjusted EBITDA, and each adjustment deserves skepticism: one-time charges have a habit of recurring annually. Buyers then apply their own adjustments downward. The negotiation over adjustments is often where deals are won or lost, and this calculator's clean baseline is the starting point for that argument.

Common Mistakes

Treating EBITDA as cash flow is the cardinal sin; it is not, and the table above shows why. Adding back D and A that was already excluded from opex double counts it, so keep the inputs clean. And comparing EBITDA multiples across industries with different capital intensity misleads. Value it properly with our EBITDA multiple calculator, check the margin with our EBITDA margin calculator, and ground it in operating profit with our EBIT calculator.

EBITDA in Loan Covenants

Lenders write EBITDA into loan agreements as the denominator of leverage covenants: total debt divided by EBITDA must stay below, say, 4.0x. Breach it and the loan can be called, which gives the EBITDA definition enormous practical weight. Borrowers negotiate add-backs aggressively for exactly this reason: every dollar of permitted add-back is a dollar of covenant headroom, and headroom is survival.

The negotiation follows ritual lines. Lenders allow add-backs for genuinely one-time costs but cap them, often at 10 to 15 percent of EBITDA, and they exclude "projected synergies" that have not happened yet. Borrowers push for broader definitions covering restructuring, integration costs, and owner compensation adjustments. The final definition, buried in the credit agreement's definitions section, matters more than any headline ratio.

Monitoring matters as much as negotiating. A covenant tested quarterly on trailing-twelve-month EBITDA can breach suddenly when a bad quarter replaces a good one in the window, even with no new borrowing. Treasurers model the covenant a year forward under stress scenarios, because discovering the breach from the lender's notice letter is the most expensive way to learn about it.

EBITDA and Owner Add-Backs in Small Deals

Small-business EBITDA routinely includes the owner's personal expenses run through the company: the car, the club membership, the family phone plan. Sellers add these back to present "true" EBITDA, and legitimate add-backs genuinely raise the valuation multiple's base. The test is documentation: each add-back needs a receipt trail and a credible story that the buyer will not incur the cost.

Buyers should verify add-backs against tax returns, not just the seller's spreadsheet, and be wary of add-backs exceeding 15 to 20 percent of reported EBITDA. Beyond that line, the adjustments start describing a different business than the one being sold. The cleanest deals present three years of tax-return EBITDA with a short, documented add-back schedule both sides can defend.

Earnouts add another layer: the seller's future payout often hinges on post-closing EBITDA hitting targets, which makes the definition a battleground. Sellers want the same generous add-backs; buyers want GAAP purity. The compromise that works is a locked definition with worked examples attached to the purchase agreement, so both sides can compute the number identically when the earnout period ends.

Estimates for planning only, not financial advice.