What does EBITDA measure?
EBITDA means earnings before interest, tax, depreciation and amortization. It is often used to compare earnings before financing and the accounting allocation of long-lived asset costs. It can make an operating cost structure easier to inspect, but does not remove the economic need to invest in those assets.
This tool uses an operating-model definition. The EBIT-to-EBITDA bridge assumes consistent earnings scope, while the P&L method includes only the operating categories shown. A company’s published EBITDA may require reconciliation for non-operating items before it can be compared with this result.
The two calculation methods
The default formula is EBITDA = EBIT + depreciation + amortization. Enter D&A as positive expenses already included in EBIT. Adding an expense that was never deducted from the starting EBIT would overstate EBITDA.
The P&L method uses revenue − COGS + other operating income − SG&A / other operating expenses − bad debt. All cost inputs must exclude D&A. There is no separate depreciation subtraction in this method because the result is before depreciation and amortization. Exclude separately entered bad debt from the other cost fields to avoid duplication.
Worked example: 2.6 million EBITDA
EBIT of 2 million plus depreciation of 0.4 million and amortization of 0.2 million gives EBITDA of 2.6 million. The 0.6 million add-back changes the earnings measure; it does not create a cash inflow.
The alternative example begins with revenue of 10 million and COGS of 6 million. Add other operating income of 0.3 million, subtract operating expenses of 1.6 million and bad debt of 0.1 million. EBITDA is again 2.6 million. Relative to revenue, the EBITDA margin is 26%.
How to use EBITDA margin
EBITDA margin = EBITDA ÷ revenue × 100. It describes the share of revenue remaining after the included operating expenses, before D&A. The calculator shows it only in the P&L method, where revenue is known. At zero revenue, the amount can be valid while the margin is undefined.
Use a margin bridge to examine price, sales mix and operating-cost changes. Other operating income can lift the margin without changing revenue. A disposal gain or temporary subsidy should not automatically be projected as a recurring improvement. Consistent classification matters more than a superficially precise percentage.
Why EBITDA is not cash flow
EBITDA excludes depreciation, but ignores the capital expenditure required to maintain or expand productive capacity. It also does not capture cash tied up in receivables and inventory, timing of supplier payments, income taxes or interest payments. A business can report positive EBITDA and still consume cash.
For example, EBITDA of 2.6 million says nothing by itself about whether the business needs 0.5 million or 4 million of annual replacement investment. Review the free cash flow guide and the balance sheet before treating EBITDA as available cash.
EBIT, adjusted EBITDA and practical limits
EBIT retains depreciation and amortization, which can help expose the cost of an asset-intensive business. Gross profit sits earlier in the income statement and excludes costs that EBITDA may include. Neither is interchangeable with EBITDA.
Adjusted EBITDA goes beyond the D&A bridge by removing specified items. This tool does not automatically exclude restructuring, share-based compensation, impairments or other non-cash costs. Bad debt remains an operating expense. If you use adjusted inputs, disclose every adjustment and avoid comparing the result with unadjusted peers. Debt agreements and valuation reports can use their own definitions; check those definitions before applying a multiple.
Frequently asked questions
Is EBITDA the same as operating cash flow?
No. Operating cash flow reflects cash collection, payments and relevant working-capital movements. EBITDA is an earnings measure that also excludes D&A but does not account for those cash timings.
Should depreciation be subtracted in the P&L method?
No. The P&L cost inputs must already be before depreciation and amortization. Subtracting D&A would produce an EBIT-like result instead of EBITDA.
Can EBITDA be negative?
Yes. Operating expenses can exceed operating revenue and income even before depreciation. Negative EBITDA can indicate an operating loss, but its causes still need analysis.
Is bad debt added back to EBITDA?
Not automatically. This calculator retains receivable impairment as an operating expense. Excluding it would be an additional adjustment requiring explanation, not part of the ordinary D&A bridge.
Is the result adjusted EBITDA?
No. The tool makes only the stated EBIT/D&A or operating P&L calculation. Any further adjustments depend on your input definitions and must be separately documented.