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E-commerce EBITDA
profitabilityEarnings Before Interest, Taxes, Depreciation, and Amortization. A measure of a company's operating performance that removes the effects of financing, accounting, and tax decisions.
Definition
EBITDA is one of the most commonly used metrics in business valuation and financial analysis. By excluding interest (dependent on debt levels), taxes (dependent on jurisdiction), depreciation, and amortization (non-cash accounting entries), EBITDA approximates the cash-generating ability of a company's core operations.
Business valuations are frequently expressed as multiples of EBITDA. A company with $500,000 in EBITDA valued at a 6x multiple would be worth $3,000,000. EBITDA multiples vary by industry: SaaS companies may trade at 10-20x, manufacturing at 4-8x, and service businesses at 3-6x. Understanding your EBITDA is essential if you ever plan to raise capital or sell your business.
Critics of EBITDA argue that it can paint an overly rosy picture by ignoring real costs. Depreciation represents the wear on assets that must eventually be replaced. Interest is a real cash obligation. Capital-intensive businesses can look artificially profitable on an EBITDA basis while burning cash on equipment replacement. Use EBITDA alongside other metrics, not as a standalone measure.
Formula
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization Example
A business has net income of $200,000, interest expenses of $30,000, taxes of $70,000, depreciation of $50,000, and amortization of $20,000. EBITDA = $200,000 + $30,000 + $70,000 + $50,000 + $20,000 = $370,000.
Related Terms
Operating Margin
profitabilityThe percentage of revenue remaining after deducting all operating expenses, but before interest and taxes. It measures the profitability of core business operations.
Net Profit
profitabilityThe total profit remaining after all expenses have been deducted from revenue, including COGS, operating expenses, interest, taxes, and any other costs. Also called the bottom line.
Gross Profit
profitabilityThe absolute dollar amount remaining after subtracting the cost of goods sold (COGS) from total revenue. It is the money available to cover operating expenses and generate net profit.
Net Margin
profitabilityThe percentage of revenue that remains as profit after all expenses, including operating costs, interest, taxes, and depreciation, have been deducted.
Put It Into Practice
Use these calculators to apply ebitda to your own numbers.
Profit Margin Calculator
Calculate gross, operating, and net profit margins.
Open calculator →Business Valuation Calculator
Estimate your business value using revenue and earnings multiples with industry context.
Open calculator →Cash Flow Forecast Calculator
Forecast your monthly cash flow, runway, and projected cash balance.
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