## How to Calculate EBITDA?

EBITDA (Earnings before interest, tax, depreciation, and amortization) is a company’s operating performance measure as an alternative to net income. It is the company’s earnings before the impact of interest, tax, depreciation, and amortization. There can be two ways to do EBITDA calculation of a company:

### Formulas to Calculate EBITDA

#### EBITDA Formula #1

EBITDA = Operating profit + Depreciation + Amortization

#### EBITDA Formula #2

EBITDA = Net Income + Tax +Interest + Depreciation + Amortization

**Examples of ****EBITDA Calculation **

Let’s see some examples of U.S. companies for the calculation of EBITDA.

### EBITDA Calculation Example #1

**J.C. Penny** is an American furniture, bedding and department store company. Below is the screenshot of Income Statement of J.C. Penny:

Source: jcpenney.com

We can see here that in 2017 the total revenue of the company was $12.5 Bn with a net loss of around $116 million. Using the above-given values we will calculate EBITDA with both the formulas:

- Calculation of EBITDA using Formula 1

Operating Profit given as $116 million and Depreciation and Amortization is $570 million.

**EBITDA** = 116 + 570 = $686 million

- Calculation of EBITDA using Formula 2

So, **EBITDA** = -116 +325 -126 +570 = $653 million.

Now you will some difference between the values of formula#1 and formula #2. The reason is that there is an exceptional item called “Loss on extinguishment of debt” which is around $30 million that comes between Operating Income and Net Income but we have not added that amount in our EBITDA calculation in Formula#2.

### EBITDA Calculation Example #2

**Starbucks Corporation** is an U. S. company founded in Seattle which is in coffee and coffeehouse chain business. Below is the screenshot of 2018 Income Statement of the corporation:

Source: Starbucks.com

We can see here that in 2018 the total revenue of the company was $24.7 Bn with a net income of around $4.5 billion. Using the above-given values we will calculate EBITDA with both the formulas:

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- Calculation of EBITDA using Formula 1

Operating Profit given as $3,883 million and Depreciation and Amortization is $1,247 million.

**EBITDA** = 3383 + 1247 = $4,630 million

- Calculation of EBITDA using Formula 2

Interest Expense = -$170.3 + 191.4 million = $21.1 million

So, **EBITDA** = 4518 +21.1 +1262 +1247 = $7,048 million.

Difference between EBITDA using formula#1 and formula #2 is because of some one-time expenses such as the acquisition of joint venture and divestiture of some operations which are not been added back while calculating EBITDA in formula #2.

### EBITDA Calculation Example #3

**Google** is a U.S. company which is in internet service and products business such as search engine. Below is the snapshot of 2018 Annual report:

Source: Google

We can see here that in 2016 the total revenue of the company was $90.3 Bn with a net income of around $19.5 billion. Using the above-given values we will calculate EBITDA with both the formulas:

Operating Profit given as $23,716 million. Depreciation can be seen from the Cash flow statement as is $5,267 million while amortization is $877 million.

- Calculation of EBITDA using Formula 1

**EBITDA** = 23716 + 5267 + 877 = $29,860 million

- Calculation of EBITDA using Formula 2

So, **EBITDA** = 19478-434+4672+6144 = $29,860 million.

### EBITDA Calculation Example #4

**Apple** is an American multinational company that develops consumer electronics products such as iphone, ipad, mac etc. Below is a snippet from the annual report of 2018:

Source: Apple Inc

We can see here that in 2018 the total revenue of the company was $266 Bn with a net income of around $59.5 billion. Using the above-given values we will calculate EBITDA with both the formulas:

Operating Profit given as $70,898 million and Depreciation and Amortization is $10,903 million.

- Calculation of EBITDA using Formula 1

**EBITDA** = 70898 + 10903 = $81,801 million

- Calculation of EBITDA using Formula 2

So, **EBITDA** = 59,531-2005+13372+10903 = $81,801 million.

### EBITDA Calculation Example #5

**Berkshire Hathaway** is an American multinational company headquartered in Omaha. It is founded by renowned investor Warren Buffet. Below is the snippet of the annual report of 2018:

Source: Berkshire Hathaway

We can see here that in 2018, the total revenue of the company was $23.855 Bn with net income of around $5,219 million. Using the above-given values we will calculate EBITDA with both the formulas:

Formula #1: EBITDA = Operating profit + depreciation + amortization

In the above report operating profit is not given directly so we will calculate that by given information.

Revenue = $23,855 million and operating expenses = $15,951 million

Operating Profit = Revenue – operating expenses

- Operating Profit = 23855- 15951 = $7,904 million

and Depreciation and Amortization is $2,317 million.

- Calculation of EBITDA using Formula 1

**EBITDA** = 7904 + 2317 = $10,221 million

- Calculation of EBITDA using Formula 2

So, **EBITDA** = 5,219+1041+1644+2317 = $10,221 million.

### Conclusion

As we saw above, calculating EBITDA from Net income or operating profit is quite easy. EBITDA takes away some accounting adjustment which had been used for calculating depreciation and amortization, but EBITDA does not provide a true picture of the company’s performance. EBITDA does not consider interest expense for the servicing debt which is an essential factor of any company. Also, it cannot also be taken as a proxy for operating cash flow of the company because it does not consider a change in net working capital for a firm.

### Recommended Articles

This has been a guide to EBITDA Calculation. This is a step by step guide to learn how to calculate EBITDA with examples from Amazon, Apple, JC Penny, Starbucks, Berkshire Hathaway. You may learn more about accounting from the following articles –