How to calculate EBITDA?

EBITDA is a key financial indicator not only for companies but also for investors. But what exactly is it and how is it calculated?

In this article, we’ll explore everything you need to know about EBITDA, from its definition to how to properly interpret it.

EBITDA formula

The most common formula for calculating EBITDA is the following:

EBITDA = Net Profit + Interest + Taxes + Depreciation + Amortization

Where:

Net profit : It is the total profit of a company after deducting all its expenses, including selling costs, administrative expenses, interest, taxes and other expenses. It is the starting basis for calculating EBITDA.
Interest : represents the cost of financing that a company pays on its debt. It includes interest on bank loans, issued bonds and other forms of debt. The goal is to eliminate the impact of the company’s financing decisions, allowing for a clearer assessment of its operational performance.
Taxes : are all taxes paid to the Treasury of a country, including. The objective is to eliminate the different realities of each country within the calculation.
Depreciation and amortization : refers to the accounting process of distributing the cost of tangible fixed assets (such as machinery, equipment or vehicles) over their useful life. It reflects the wear and tear or obsolescence of these assets. Adding depreciation back to net profit eliminates the impact of fixed asset investment decisions and accounting practices on operating profitability.

To calculate EBITDA, follow these steps:

It starts from the operating result, which is also called EBIT ( Earnings Before Interests, Taxes ).
To this figure we must add the amounts destined to provide provisions.
Finally, the amount corresponding to productive amortization is also added.