Glossary

What is EBITDA?

EBITDA is earnings before interest, tax, depreciation and amortisation: net profit with those four items added back. It is used to compare operating performance between businesses with different financing, tax positions and asset bases.

Also called: Earnings before interest, tax, depreciation and amortisation

EBITDA is not a measure defined by accounting standards, so businesses and lenders sometimes calculate it differently. It is not a cash figure either: it ignores capital spending, changes in working capital, loan repayments and tax actually paid.

Nella shows EBITDA only where every component is reported in the books for the month; a month missing one is left blank rather than estimated.

How it is calculated

EBITDA = net profit + tax + interest + depreciation + amortisation.

EBITDA margin = EBITDA ÷ revenue × 100.

Worked example

Example · illustrative figures

A business with revenue of $400,000 reports net profit of $40,000 after tax of $10,000, interest of $3,000, depreciation of $6,000 and amortisation of $1,000.

EBITDA = $40,000 + $10,000 + $3,000 + $6,000 + $1,000 = $60,000. EBITDA margin is $60,000 ÷ $400,000 = 15%.

How to read it

EBITDA strips out how a business is financed (interest), taxed and how its assets are written down, so it is used to compare operating performance between businesses or over time. It is most meaningful as a margin, and as a trend for the same business.

Common mistakes

  • Treating EBITDA as cash: it ignores capital spending, working capital, loan repayments and tax actually paid.
  • Comparing figures calculated on different definitions, especially “adjusted” EBITDA with items added back.
  • Estimating EBITDA from net profit when one of the components is missing.

How it shows in Nella

Nella shows monthly EBITDA with your profit figures only where your books report every component for that month; a month missing one is left blank rather than estimated. See profit and KPIs in Nella.

Related

Nella provides financial information and education, not accounting or tax advice.

See it on your own numbers

Nella works these figures out from your books every month. Nella Pro is free for 60 days, no card, including the entries you approve posted to your books. After that, Nella Free keeps reading your books, with no time limit.

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FAQ

Questions people ask

Is EBITDA the same as cash flow?
No. EBITDA leaves out capital spending, changes in working capital, loan repayments and tax paid, all of which move cash.
What is adjusted EBITDA?
EBITDA with further items added back, such as one-off costs. There is no standard list of adjustments, so adjusted EBITDA from two businesses is rarely comparable.

More terms

Browse the full glossary.