Add interest, taxes, depreciation, and amortization back to net income to find EBITDA — and enter revenue to see your EBITDA margin.
EBITDA — earnings before interest, taxes, depreciation, and amortization — strips out financing and accounting decisions to show a company's core operating profitability. Investors, lenders, and acquirers lean on it because it makes businesses with different capital structures and tax situations easier to compare.
Starting from the bottom line: EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization. Each item is "added back" because it reflects financing (interest), jurisdiction (taxes), or non-cash accounting (depreciation and amortization) rather than day-to-day operations. With $200,000 net income and $110,000 of add-backs, EBITDA is $310,000.
EBITDA margin = EBITDA ÷ Revenue × 100 shows operating profitability as a percentage of sales, which is far more comparable across companies than the dollar figure. A higher margin means more of each revenue dollar survives as operating cash flow before financing and taxes.
Tip: EBITDA is not cash flow. It ignores capital expenditures, working-capital changes, and the real cost of debt. A capital-intensive business can post strong EBITDA while generating little free cash, so pair it with cash-flow analysis.
Businesses are often valued as a multiple of EBITDA (for example, "6× EBITDA"), because it approximates operating earnings available to all capital providers. Just remember its critics have a point: by excluding real costs like equipment replacement, EBITDA can flatter a business, so use it alongside net income and free cash flow rather than on its own.