An EBITDA calculator does one addition: net income plus interest, taxes, depreciation and amortization, which is the earnings a business makes before the costs of how it is financed, taxed and how its assets are written down. The EBITDA calculation is the starting point for valuing a company that a buyer will finance and tax differently, and the EBITDA margin, EBITDA as a percentage of revenue, is the figure that says how much of each dollar of sales the operation keeps. Adjusted EBITDA adds back the owner's one-off and personal costs on top, and the difference between adjusted EBITDA vs EBITDA is where most of a small-business negotiation happens. This page works all three on one set of books and points at the free small business valuation tool on this site that takes them as inputs, with no account.
The EBITDA calculation formula, from net income
EBITDA equals net income plus interest expense plus income taxes plus depreciation plus amortization. On a business with $1,000,000 of revenue and $120,000 of net income, with $15,000 of interest, $25,000 of taxes, $15,000 of depreciation and $5,000 of amortization, EBITDA is $120,000 plus $60,000, $180,000. The same figure from the top down is revenue less operating costs before those four items, and the two routes should agree; when they do not, an item has been classified twice. The Financial Accounting Standards Board's standards, linked below, govern how each of the four items is reported on the statements the calculation reads from, and the IRS Schedule C, also linked, is where a sole proprietor's version of the same figures appears.
The EBITDA margin formula: EBITDA as a percentage of revenue
EBITDA margin equals EBITDA divided by revenue, times 100. On the worked books, $180,000 divided by $1,000,000 is an 18% EBITDA margin: the operation keeps eighteen cents of each dollar of sales before financing, tax and write-downs. EBITDA margins are how two businesses of different sizes are compared, and the EBITDA percentage is the figure a buyer reads to judge whether the earnings are a thin layer on a large revenue or a thick one on a small revenue. A margin that moves from 18% to 12% over three years is the question a buyer will ask before any multiple is discussed, and the calculator shows the margin for each year entered.
Adjusted EBITDA and the EBITDA add backs
Adjusted EBITDA equals EBITDA plus the add-backs: the owner's salary above a market replacement, personal expenses run through the business, one-off costs such as a lawsuit, a move or a bad debt, and non-recurring revenue taken out the other way. On the worked books, $180,000 of EBITDA with $40,000 of owner salary above market and $10,000 of one-off legal costs added back is $230,000 of adjusted EBITDA. The add-backs are the argument: every one has to be documented and every one will be tested by the buyer, and the calculator on this site takes them as separate inputs so each can be shown and defended rather than folded into a total.
Adjusted EBITDA vs EBITDA, and which one the multiple is applied to
EBITDA vs adjusted EBITDA is a difference of $50,000 on the worked books, and at a multiple of 2.5 that is $125,000 of value, which is why the add-backs are argued line by line. For an owner-run small business the figure the multiple is usually applied to is seller's discretionary earnings, which is adjusted EBITDA with the owner's entire salary added back rather than only the excess above market, and the SDE page on this site says when each is the right one. The free small business valuation tool takes the earnings figure the owner chooses and the multiple they enter and shows the value; the hub publishes no multiple and no margin for any trade, and the Bureau of Labor Statistics' wage data is where the market salary behind the add-back is read.
Questions people ask about ebitda calculator
How is EBITDA calculated?
Net income plus interest, taxes, depreciation and amortization. On $120,000 of net income with $60,000 of those items, EBITDA is $180,000. From the top down it is revenue less operating costs before those four items.
What is the EBITDA margin formula?
EBITDA divided by revenue, times 100. $180,000 on $1,000,000 of revenue is an 18% margin, the share of each dollar of sales the operation keeps before financing, tax and write-downs.
What is the difference between adjusted EBITDA and EBITDA?
The add-backs: owner salary above market, personal expenses, one-off costs, with non-recurring revenue taken out. $180,000 of EBITDA with $50,000 of add-backs is $230,000 adjusted, and at 2.5 that difference is $125,000 of value.