EBITDA Calculator
Calculate EBITDA, adjusted EBITDA and EBITDA margin from your income statement, add back owner and one-off items, and see an indicative valuation range at common multiples.
Book a Free 30-Minute Call
Buyers and lenders will challenge every add-back you claim. Book a free 30-minute call with an Ex-PwC CA who has sat on both sides of that conversation.
Book Your Free 30-Min Call →The Formula
EBITDA = Net Income + Interest + Taxes + Depreciation + AmortisationAdjusted EBITDA = EBITDA + Owner add-backs + One-off itemsEBITDA Margin = EBITDA ÷ Revenue × 100
The logic is that interest reflects how you financed the business, tax reflects where you are domiciled and how you are structured, and depreciation reflects historic capital spending decisions. Strip all four out and you are left with something closer to the cash-generating power of the operations themselves — which is what a buyer is actually purchasing.
Which Add-Backs Survive Diligence
Adjusted EBITDA is where most valuation arguments happen. Generally accepted:
- Owner compensation above market rate — if you pay yourself $400,000 for a role a hired manager would do for $150,000, the $250,000 difference is a legitimate add-back.
- Genuinely non-recurring items — a one-time legal settlement, a failed acquisition's costs, a flood.
- Personal expenses run through the business — the vehicle, the family phone plan, the holiday booked as a conference.
- Rent above or below market where the premises are owned by the seller.
Generally rejected: "one-off" costs that appear in three consecutive years, marketing you chose to cut just before sale, and unfilled roles the buyer will have to fill on day one. A buyer's quality-of-earnings review exists specifically to test these, and add-backs that don't survive it cost you credibility on the ones that would have.
EBITDA's Blind Spot
EBITDA ignores capital expenditure, and for asset-heavy businesses that makes it flattering to the point of misleading. A haulage company with $90,000 of annual depreciation is not enjoying $90,000 of free cash — those trucks genuinely wear out and genuinely need replacing. Depreciation is a rough proxy for that reality, and adding it back pretends the cost doesn't exist.
This is why lenders look at debt service coverage and buyers look at free cash flow alongside EBITDA. Use our cash flow forecast calculator to see what actually reaches the bank.
Frequently Asked Questions
What is a good EBITDA margin?
It is entirely industry-dependent. Software businesses often run 20-40%, professional services 15-25%, distribution and retail 3-10%. The only meaningful comparison is against direct competitors in your own sector.
What EBITDA multiple will my business sell for?
For small businesses under roughly $5M of EBITDA, 3-6x is a common range, driven by growth rate, customer concentration, recurring revenue, and how dependent the business is on the owner. The 4x and 6x figures above are illustrative bookends, not a valuation.
Is EBITDA the same as cash flow?
No, and treating it as such is a frequent and expensive mistake. EBITDA ignores capital expenditure, working capital movements, debt repayments and tax actually paid. A business can show healthy EBITDA and still be unable to pay its bills.
Should I use EBITDA or SDE for a small business?
Seller's Discretionary Earnings adds the owner's entire compensation back and is the usual measure for owner-operated businesses under about $1M of earnings. Above that, buyers generally expect EBITDA with a market-rate management salary deducted.