Learn more about common financial (and startup) terms here. To learn more about Pilot, fill out the form below.
EBITDA, or Earnings Before Interest, Taxes, Depreciation, and Amortization, is a financial metric commonly used to evaluate a company's operational performance. By excluding non-operating expenses, EBITDA provides a clearer picture of a company's ability to generate cash flow from its core operations. In this article, we’ll guide you through the calculation of EBITDA, discuss its significance, and outline strategies to improve it.
The formula for calculating EBITDA is as follows:
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
Let's consider a real-world example of a manufacturing company to calculate its EBITDA. We'll use the following financial data:
Using the formula stated, we’ll input each value and add them up to get the EBITDA:
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
EBITDA = $2,000,000 + $300,000 + $400,000 + $150,000 + $100,000
EBITDA = $2,300,000 + $400,000 + $150,000 + $100,000
EBITDA = $2,700,000 + $150,000 + $100,000
EBITDA = $2,850,000 + $100,000
EBITDA = $2,950,000
So, the EBITDA of the manufacturing company is $2,950,000. This means that the company generated $2,950,000 in earnings before accounting for interest, taxes, depreciation, and amortization expenses.
EBITDA is an important financial metric to understand for several reasons:
Here are some strategies that can help improve your EBITDA:
Pilot provides bookkeeping, CFO, and tax services for literally thousands of startups and growing businesses. We've successfully processed over 10 million transactions for our customers and have unparalleled expertise when it comes to helping businesses succeed.
We're the largest startup-focused accounting firm in the United States, and we'd love to help you. To talk to an expert on our team and find out what Pilot can do for you, please click "Talk to an Expert" below, or email us at [email protected].
Get the peace of mind that comes from partnering with our experienced finance team.