EBITDAwhat banks and investors look at first
What EBITDA tells you and how to calculate it in two steps.
Create your financial plan
What EBITDA tells you and how to calculate it in two steps.
Create your financial planEBITDA stands for Earnings before Interest, Taxes, Depreciation and Amortization, the profit before interest, taxes and write-downs. It shows a company's operating earning power, regardless of how it is financed, how high its tax burden is, and what depreciation policy it follows.
Because it strips out financing, taxes and depreciation policy, EBITDA is easy to determine and comparable across companies, sectors and borders. That makes it the most widely used earnings metric. In transaction and financing advisory, much of the work revolves around adjusted EBITDA, where one-off items are stripped out to reveal the sustainable earning power.
In a financial plan, EBITDA is one of the central figures. It is the starting point for cash flow and thus for the DSCR, it serves banks as the basis for covenants such as net debt to EBITDA, and investors value companies via EV/EBITDA multiples.
EBITDA can be calculated two ways that lead to the same result. Top down, starting from revenue:
| Revenue | 1,500,000 € |
| − Cost of materials / COGS | 600,000 € |
| − Personnel expenses | 450,000 € |
| − Other operating expenses | 225,000 € |
| = EBITDA | 225,000 € |
Or bottom up, starting from net income, by adding back the items that were taken out:
| Net income | 105,000 € |
| + Income taxes | 45,000 € |
| + Interest | 20,000 € |
| + Depreciation and amortization | 55,000 € |
| = EBITDA | 225,000 € |
Both ways give 225,000 €. Against revenue of 1,500,000 €, that is an EBITDA margin of 15 percent. What counts as a good margin depends heavily on the sector: software often exceeds 30 percent, retail tends to sit in the low single digits. A blanket benchmark is therefore misleading; what matters is the comparison within your own sector and over time.
Planvik computes EBITDA, EBIT and all further metrics for every plan year automatically from your projected P&L, linked all the way through to the balance sheet and cash flow. The result is a bank-ready Excel financial model you can submit directly.
Create your financial planEBITDA is the top rung of the income statement. Subtract depreciation and amortization and you get EBIT, the operating result. After interest and taxes, net income remains:
| EBITDA | 225,000 € |
| − Depreciation and amortization | 55,000 € |
| = EBIT | 170,000 € |
| − Interest | 20,000 € |
| = Earnings before taxes | 150,000 € |
| − Income taxes | 45,000 € |
| = Net income | 105,000 € |
As useful as EBITDA is for comparisons, it hides real burdens. Depreciation reflects the wear on machines and assets that will eventually have to be replaced. Interest and taxes are genuine cash outflows. EBITDA is therefore not a cash flow and can make capital-intensive business models look better than they are. For the question of whether a company can actually service its debt, what counts is the cash flow after these items, as measured by the DSCR.
Adjusted EBITDA strips out one-off or non-operating items, such as restructuring costs, litigation or an excessive owner's salary, to reveal the sustainable, recurring earning power. In M&A processes, the size of these adjustments is often the most fiercely negotiated point.
It relates enterprise value to EBITDA and shows how many years of EBITDA a buyer is paying. Depending on sector, growth and market phase, multiples roughly range between four and fifteen times.
Yes. The second A in EBITDA stands for amortization, the write-down of intangible assets such as goodwill or licences. It is added back just like depreciation of tangible assets.
Variants with a different scope: EBITA only excludes amortization of intangibles, EBITDAR additionally excludes rent. The latter is common for companies with high lease or rent costs, such as retail or airlines.
Planvik derives EBITDA for every plan year automatically from the projected P&L, together with EBIT, net income and the other metrics. Special items can be entered as their own lines, so they are included in the reported EBITDA.