Calculate EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and EBITDA margin. The standard metric for business valuation and profitability analysis.
The income statement down to operating costs
Revenue and cost of goods
$
Annual gross revenue.
$
Direct costs to produce products/services.
Operating costs and non-cash charges
$
SG&A, payroll, rent, marketing — exclude depreciation and amortization.
$
Non-cash D&A expense included in operating expenses above.
EBITDA
$380,000
Earnings Before Interest, Taxes, Depreciation & Amortization.
Formula verified 12 September 2026
EBITDA Margin
38.0%
EBITDA as a % of revenue — profitability measure independent of capital structure.
Gross Margin
60.0%
Gross profit as a % of revenue.
Gross Profit
$600,000
Revenue less cost of goods sold.
EBIT (Operating Profit)
$350,000
EBITDA less depreciation and amortisation — the gap between the two IS the add-back.
Illustrative value at 5× EBITDA
$1,900,000
Illustrative only, not a valuation. 5× sits in the lower-mid range for private-company sales; actual multiples vary by size, growth, and sector.
Illustrative value at 8× EBITDA
$3,040,000
Illustrative only, not a valuation. 8× is roughly mid-market; public sectors run higher (Damodaran total-market EV/EBITDA ≈ 24× as of Jan 2026).
How revenue flows down to EBITDA, line by line, using the figures you entered. Margins are each item as a share of revenue. Same formulas as the calculator.
Line item
Amount
% of revenue
Revenue
$1,000,000
100.0%
Less: COGS
$400,000
40.0%
Gross profit
$600,000
60.0%
Less: operating expenses (excl. D&A)
$220,000
22.0%
Less: depreciation & amortization
$30,000
3.0%
EBIT (operating profit)
$350,000
35.0%
Add back: D&A
$30,000
3.0%
EBITDA
$380,000
38.0%
Estimates only — not financial, tax, or professional advice.
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What it calculates: EBITDA, EBITDA Margin, Gross Margin, Gross Profit.
Updated 5 June 2026 · Transparent assumptions
Gross profit $600,000, EBIT $350,000, and the $30,000 of depreciation added back
Revenue of $1m less $400,000 of cost of goods leaves $600,000 of gross profit, a 60% gross margin. Taking off $250,000 of operating expenses leaves $350,000 of operating profit, or EBIT. Adding back the $30,000 of depreciation and amortisation — a charge that reduced profit without moving any cash — gives EBITDA of $380,000, a 38% margin.
The order matters for reading the business. Gross margin tells you about pricing and unit cost; the step from gross profit to EBIT tells you what the overhead costs; and the gap between EBIT and EBITDA tells you how capital-intensive the business is. A company where that gap is large owns a lot of depreciating assets, and EBITDA will flatter it most.
Stripping out financing, tax and depreciation makes two different companies comparable
EBITDA exists to compare operating performance across businesses whose capital structures, tax positions and asset ages differ. Two identical operations — one owned outright, one leveraged; one with new equipment, one with fully depreciated equipment — report very different net profit and near-identical EBITDA. For a buyer assessing the underlying business, that is the point.
It is also why acquirers price on EBITDA multiples. The valuations shown here, $1.9m at five times and $3.04m at eight, are how small-business and mid-market transactions are commonly quoted. The multiple itself carries all the judgement: growth rate, customer concentration, recurring revenue and sector norms move it far more than the EBITDA figure does.
Equipment that wore out still has to be replaced, and EBITDA pretends otherwise
The standing criticism of EBITDA is that adding back depreciation treats the consumption of assets as if it did not happen. For a software business with little equipment, the distortion is small. For a haulage company, a manufacturer or anything asset-heavy, depreciation approximates a real and recurring cost of staying in business, and EBITDA overstates what the business generates.
The test is capital expenditure. If a company\u2019s ongoing capex runs close to its depreciation charge, EBITDA is overstating cash generation by roughly that amount every year. Free cash flow — operating cash flow less capex — is the measure that does not let that through, and it is why lenders look at both.
Every add-back is a judgement, and some of them are not one-offs at all
Sellers frequently present adjusted EBITDA, adding back items claimed to be non-recurring or non-operational: legal settlements, restructuring, founder salary above market, personal expenses run through the business. Some adjustments are entirely legitimate and materially change what a buyer should pay.
Others are not. Restructuring charges that appear every year are an operating cost. Owner compensation added back without replacing it with the cost of hiring a manager overstates what the business earns for a new owner. Every add-back should be tested against one question — will this cost exist next year under new ownership — and the burden of proof sits with whoever is adding it back.
One period, clean inputs, and no working capital
The figures assume your income statement lines are already correct and consistently classified. Where cost of goods and operating expenses are drawn matters: shifting delivery or fulfilment cost between them changes gross margin materially while leaving EBITDA untouched, which is why gross margin comparisons across companies are less reliable than they look.
EBITDA says nothing about working capital. A growing business can post strong EBITDA while cash sits in inventory and receivables, and run out of money regardless. It also ignores debt service entirely — profitable on EBITDA and unable to pay interest is a common and specific failure. Read it alongside operating cash flow and the interest cover ratio rather than alone.
Sources & References
Figures on this page are checked against primary, authoritative sources. Links open in a new tab.
Results are estimates for planning and analysis based on the figures you enter. They are not accounting, tax, or financial advice — verify with your own records and a qualified professional before making decisions.
Published the calculator with its formula, worked example, assumptions, limitations and a bespoke guide, and added an automated formula test suite covering it.
Tested that EBITDA exceeds EBIT by exactly the depreciation and amortisation added back, and that both margins are measured against the same revenue.
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