How to Calculate EBITDA: Formula, Example and EBITDA Margin

EBITDA formula

EBITDA = Net income + Interest expense + Income tax expense + Depreciation + Amortization

• Net income: Bottom-line profit after all expenses, interest and taxes, from the income statement.
• Interest expense: Cost of debt for the period. Add back net interest if you also earn interest income.
• Income tax expense: Tax charged on the income statement for the period (not cash taxes paid).
• Depreciation and amortization: Non-cash charges spreading the cost of equipment (depreciation) and intangibles such as acquired patient lists or software (amortization) over their useful lives.

How to calculate EBITDA in Excel and Google Sheets

Excel, using the cells in the worked example below:

=SUM(B3:B7)

Worked example

A three-location dental group is talking to a buyer who values practices on a multiple of EBITDA. The owner pulls last year's income statement lines into a sheet.

1. Start with net income: $512,000.
2. Add interest ($148,000) and taxes ($171,000): $831,000. That is EBIT, or operating income if there are no other non-operating items.
3. Add depreciation ($236,000) and amortization ($64,000): EBITDA = $1,131,000.
4. EBITDA margin = 1,131,000 ÷ 6,850,000 = 16.5%. In Excel: =SUM(B3:B7)/B2.

Result: $1,131,000 EBITDA (16.5% EBITDA margin)

How to interpret EBITDA

EBITDA is popular for comparing businesses with different debt levels, tax situations and asset ages, and it is the base for many valuation multiples and loan covenants. It is not cash flow: it ignores capital expenditure, working-capital swings and actual tax payments. A business with heavy equipment needs, like a dental group replacing chairs and imaging, can show healthy EBITDA and still be short of cash. Track EBITDA margin over time and next to capex before drawing conclusions.

Common mistakes

• Adding back items that aren't interest, tax, depreciation or amortization (owner perks, one-off legal fees) without labelling the result 'Adjusted EBITDA'. Buyers and lenders will separate the two.
• Double-counting D&A that is already excluded from operating expenses. Check whether depreciation sits inside COGS or opex before adding it back.
• Treating EBITDA as cash. Subtract capex and the change in working capital to approximate free cash flow.
• Mixing periods: trailing-twelve-month EBITDA against a single quarter's revenue gives a meaningless margin.

Calculate EBITDA with Better Analyst

Connect your data or upload a spreadsheet, then ask in plain English. Better Analyst writes and runs the calculation and shows the steps, so you can check the number.

• “Calculate EBITDA and EBITDA margin by location for each quarter from this P&L export.”
• “Bridge net income to EBITDA for last year and show which add-backs are largest.”
• “Chart trailing-twelve-month EBITDA against capex for the last three years.”

Usually calculated from: Google Sheets, OneDrive, SharePoint, Microsoft SQL Server, Snowflake, Google BigQuery.

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Further reading

• Gross margin formula
• Income statement template
• Profit and loss template
• Explain changes in monthly P&L
• Better Analyst for finance teams