EBITDA Calculator
Calculate EBITDA, EBIT, gross profit margins and enterprise value using EV/EBITDA multiples. Used for UK business valuation and M&A analysis.
Step 1: Income Statement Inputs
What is EBITDA?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortisation. It is one of the most important financial metrics in business valuation, mergers and acquisitions (M&A), and corporate finance. By stripping out non-operating items, financing costs, and accounting charges, EBITDA attempts to show a business's underlying operational cash-generating capability on a like-for-like basis across different companies, capital structures, and tax jurisdictions.
The formula is: EBITDA = Revenue − COGS − Operating Expenses + Depreciation + Amortisation. Equivalently: EBITDA = EBIT + D&A. Or starting from the bottom: EBITDA = Net Profit + Interest + Taxes + Depreciation + Amortisation.
Why EBITDA Matters for Business Valuation
When a private equity firm, trade buyer, or management buyout team values a business, they almost invariably use EBITDA as the starting point. The reason is comparability: two identical businesses — one funded by equity and one heavily leveraged with debt — will show very different net profits due to interest costs. EBITDA neutralises the capital structure, allowing direct comparison of operational performance.
Similarly, two businesses with identical equipment but different depreciation policies (one depreciated over 5 years, another over 10) will show different EBIT figures. By adding back depreciation, EBITDA removes this accounting noise. And by removing tax, EBITDA enables comparison across different tax jurisdictions or companies with different tax histories.
EBITDA vs Net Profit
A common misconception is that EBITDA is a cash flow measure. It is not. EBITDA is not the same as cash from operations: it does not account for changes in working capital, capital expenditure (capex), or debt repayment. A business can have strong EBITDA but poor cash generation if it is rapidly building inventory, extending credit to customers, or investing heavily in equipment.
Warren Buffett has famously criticised the widespread use of EBITDA, calling it "earnings before bad stuff" because depreciation represents a real economic cost (the wearing out of assets that will need replacement). A capital-intensive business that ignores depreciation is understating the true cost of its operations. Analysts in such industries (telecoms, utilities, manufacturing) are generally more cautious about using EBITDA in isolation.
EBITDA Multiples by Sector
| Sector | Typical EV/EBITDA Range | EBITDA Margin Benchmark |
|---|---|---|
| Technology / SaaS | 15 – 25× | 20% – 40%+ |
| Healthcare | 12 – 20× | 15% – 25% |
| Professional Services | 8 – 14× | 15% – 28% |
| Manufacturing | 7 – 12× | 10% – 20% |
| Food & Beverage | 8 – 14× | 8% – 18% |
| Retail | 5 – 10× | 5% – 12% |
| Construction | 5 – 8× | 4% – 10% |
Enterprise Value vs Market Capitalisation
Enterprise Value (EV) is a measure of a company's total value, including its equity and debt, less any cash holdings. EV = Market Capitalisation + Total Debt − Cash and Cash Equivalents. This is important because when you acquire a business, you are assuming responsibility for its debt as well as its equity. A company with a £5 million market cap and £2 million net debt has an EV of £7 million — which is the true price of buying the whole business.
The EV/EBITDA multiple therefore shows the total price being paid per unit of operating earnings, before financing costs. It is more useful than the Price/Earnings (P/E) ratio for comparing companies with different capital structures.
Adjusted and Normalised EBITDA
In practice, buyers and lenders rarely use reported EBITDA. They use adjusted or normalised EBITDA, which removes one-off items that do not reflect sustainable trading. Common adjustments include: adding back one-off legal costs or redundancy payments; removing a retiring owner-director's above-market salary; adding back non-cash share-based compensation; adjusting for related-party transactions not at arm's length; and removing gains or losses on asset disposals.
The quality of EBITDA adjustments is often contested in M&A negotiations. Buyers seek to minimise adjustments (lower normalised EBITDA = lower price); sellers seek to maximise them. Rigorous financial due diligence focuses heavily on whether claimed adjustments are legitimate and non-recurring.
EBITDA in Bank Lending
UK banks use EBITDA extensively in setting lending covenants. The most common covenant is the Net Debt to EBITDA ratio, which measures financial leverage. A bank might require Net Debt/EBITDA to remain at or below 3.0x throughout a loan term. If a business's EBITDA falls and the ratio breaches the covenant, the bank may demand early repayment or restructuring. Many businesses discovered this in 2020 during Covid-19 lockdowns when EBITDA collapsed.
Interest Cover is another common EBITDA-based covenant: EBITDA/Interest Expense must remain above 2.0x or 2.5x. This ensures the business generates enough operational earnings to service its debt interest comfortably.
UK SME Valuations
For privately held UK SMEs (small and medium enterprises), EBITDA multiples are typically lower than those applied to listed companies, reflecting the illiquidity premium and concentration risk of smaller businesses. A profitable UK SME with £500,000 to £2 million EBITDA might sell at 5x to 8x EBITDA in a trade sale. Businesses with strong recurring revenue, management depth, and growth prospects can command premiums of 10x or more.
The sale process for a UK business typically involves: engaging a corporate finance adviser; preparing an Information Memorandum; approaching strategic and financial buyers; running a structured auction; managing due diligence; and negotiating the Sale and Purchase Agreement. EBITDA is central to pricing discussions throughout this process.
ACCA and AAT Content on EBITDA
EBITDA features in ACCA (Association of Chartered Certified Accountants) Financial Analysis and Business Analysis papers. Students are expected to calculate EBITDA from income statement data, calculate EBITDA margins, use EV/EBITDA to derive enterprise values, and critically evaluate the metric. AAT Level 4 Financial Statements of Limited Companies also covers profit and loss analysis including operating profit and related margins.