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Enter revenue
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Direct costs of production
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Exclude D&A — enter separately below
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Non-cash charge added back in EBITDA
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Optional — to calculate EV/EBITDA multiple
EBITDA
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What Is EBITDA?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It's a widely used proxy for operating cash flow and business earning power, stripping out financing decisions, tax environments, and non-cash accounting charges to give a cleaner view of operational performance.
EBITDA Formula
EBITDA = Net Income + Interest + Taxes + D&A
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EBITDA = Revenue − COGS − OpEx + D&A
EBITDA Margin = EBITDA ÷ Revenue × 100. EV/EBITDA = Enterprise Value ÷ EBITDA (used for company valuation comparisons).
💡 Typical EBITDA multiples by industry: SaaS: 15–30x | Manufacturing: 5–8x | Retail: 4–7x | Healthcare: 8–15x | Restaurant: 4–6x. Higher multiples reflect faster growth expectations.
Frequently Asked Questions
EBITDA margins vary significantly by industry. Software/SaaS companies can have margins of 20–40%+. Manufacturing typically runs 10–15%. Retail and restaurants often run 5–10%. As a rough benchmark, an EBITDA margin above 10% is generally considered healthy for most industries. Always compare against industry peers rather than an absolute standard.
EBITDA ignores changes in working capital (accounts receivable, inventory, accounts payable), capital expenditures (CapEx), and taxes actually paid. A company can have high EBITDA but negative free cash flow if it's investing heavily in CapEx or has deteriorating working capital. Warren Buffett has famously criticized EBITDA for this reason — always look at free cash flow for a full picture.
Adjusted EBITDA adds back one-time or non-recurring items — such as restructuring costs, legal settlements, stock-based compensation, or gain/loss on asset sales — to give a clearer picture of "normalized" operating performance. In M&A transactions, buyers and sellers negotiate which add-backs are legitimate, making adjusted EBITDA a common point of negotiation.
EV/EBITDA (Enterprise Value to EBITDA) is a valuation multiple used to compare companies regardless of capital structure. A lower multiple suggests the company is cheaper relative to peers. It's preferred over P/E for capital-intensive businesses. Private equity firms typically target acquisitions at 5–8x EBITDA for mature businesses and aim to exit at 8–12x.
EBITDA margins by sector: Software/SaaS 20–40%; Financial services 25–35%; Healthcare 15–25%; Manufacturing 8–15%; Retail 3–10%; Restaurants 5–12%. A 20%+ margin is considered strong across most industries. Always compare within the same sector — 10% is excellent in grocery, poor in SaaS. EBITDA margins are used to calculate acquisition multiples (typically 5–10× EBITDA in M&A).
Adjusted EBITDA removes non-recurring items to show normalized earning power: above-market owner compensation, one-time legal fees, restructuring costs, M&A expenses, asset sale gains/losses, and non-cash stock compensation. It's the number most commonly used in M&A transactions because it reflects sustainable earnings capacity rather than one-time distortions.
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