The calculation of Earnings before Interest, Tax, Depreciation, and Amortization (EBITDA) is quite simple and can be done in three easy steps. For an EBITDA meaning and use in valuation click the above links for a better description.
Step 1) The EBITDA calculation formula is quite simple in fact all of the information needed is contained within the income statement. The first step to calculate EBITDA from the income statement is to pull the operating profit or Earnings before Interest and Tax (EBIT). This can be found within the income statement after all Selling, General, and Administrative (SG&A) expenses as well as depreciation and amortization.
Step 2) Because the EBIT has already had the depreciation and amortization expense taken out within the income statement. It is necessary to add these expenses back to see what sort of cash flow the company really has contained within EBITDA. Once these non-cash expenses have been added to EBIT it is then considered the EBITDA and true amount of cash contained within the company. Many investors and users of financial statements use this number because the non-cash expenses do little to say about the actual cash flows of the company. Thus the EBITDA is meant to reveal the true position of the company.
The EBITDA calculation formula is as follows:
Operating Profit(Income) or EBIT
+ Depreciation Expense
+ Amortization Expense