EBITDA calculator is a tool which helps you calculate EBITDA. This is an indicator very similar to EBIT which was created to measure the effectiveness of given company. Want to know more? Keep reading! In this article, you will get to know the EBITDA definition and also find the answer to questions: how to calculate EBITDA and what is EBITDA multiple?
Interested? You are at a good place.
EBITDA is very similar to EBIT. In simple words, this is the same as EBIT but expanded by amortization and depreciation. The exact EBITDA definition sounds: Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA is made to measure the operating profit of given company before deduction of interest, taxes and, as we have already written above, deprecation and amortization. EBITDA, similarly to EBIT, is an indicator which makes it possible to rate the real capabilities of companies and also to compare them, even if they operate in different tax system or have different financial strategies.
How to calculate EBITDA?
The next question which has probably appeared in you head is: "how to calculate EBITDA?"
As we have already mentioned, EBITDA is EBIT expanded by amortization and depreciation. In simplest words, the formula is based on EBIT and DA - our depreciation and amortization - so it's enough to add it to EBIT. To make it clear, here you have the whole EBITDA formula:
EBITDA = operating profit + depreciation expense + amortization expense
Depending of what you are looking for, you can build the EBITDA quarterly value or the trailing twelve months value. For the later one, you have to find the last twelve months operating profit value as well as the depreciation and amortization accumulated over the same period.
EBITDA is extremely useful for business valuation but also for determining profitability and how much free money remains after company operations. Two methods for calculating such free cash are: the levered free cash flow and the unlevered free cash flow.
What is EBITDA multiple?
When you look for the information about EBITDA, you might come across EBITDA multiple. It is, to be precise, an another indicator, but it is worth mentioning here, as it is strictly connected with EBITDA. So... what is EBITDA multiple?
It is also known as enterprise multiple and is used to determine the value of the company. Thanks to it, investors can pin down if given company is undervalued (it may happen if the ratio is low) or overvalued (it is possible if the ratio is high). To calculate EBITDA multiple we need firstly, as its name indicates, EBITDA and the enterprise value of a company. The ratio expresses how many times the enterprise costs related to the EBITDA it produces.
Similarly, there are other multiple ratios like Ev to sales or even more specific valuation ratios like price to book ratio, and price to cash flow. The objetive of all of them is determine if the current price of the stock represents the value of the company or if it is overvalued.
We hope that this short article has helped you and made you more knowledgeable in the word of business and finance. If you are an entrepreneur or plan to become one in the future, we wish you good luck, and recommend to take a look at the time value of money calculator as well!