Are you facing big business decisions and feeling like you don’t know what the right solution is? Maybe you’ve been considering leaving the workforce and selling your business, but don’t know how to properly present the fiscal health of your business to buyers. Maybe the unpredictable economy has hit your organization hard and you’re considering layoffs. Or perhaps your business is thriving and you want to know if it makes sense to upgrade your expensive equipment in the next fiscal year. Rather than diving in blind, let’s talk about EBITDA.

EBITDA is an important operational performance metric for companies large and small that can help you navigate those decisions with ease. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It provides insight into a company’s efficiency and profitability by excluding certain non-cash and/or variable expenses from a company’s net profit.

In this blog post, we’ll share how you can calculate EBITDA for your company, and how you can use that information to guide future business decisions. We’ll also provide you with a few ways you can increase your EBITDA in order to optimize your performance against your top competitors, and we’ll share one of Jan’s favorite books on the topic.

Understanding and Calculating EBITDA

EBITDA is a measurement of a company’s core operating performance, stripping away the effects of financing decisions, tax rates, and accounting practices. It is essentially a reflection of a company’s ability to generate profits from its operations, excluding certain non-operating items.

Here’s the breakdown of each component of this acronym:

  • Earnings: This represents a company’s net income or profit before interest and taxes are considered.
  • Before: This part of the acronym suggests that certain items will be excluded from the company’s operational performance metric.
  • Interest: Interest expenses are excluded because they depend on a company’s capital structure and financial policies, which can vary widely.
  • Taxes: By excluding taxes, EBITDA focuses solely on the operational aspects of the business, disregarding the impact of tax rates (which are affected by geography) and strategies.
  • Depreciation: EBITDA adds back depreciation to account for the non-cash nature of this accounting expense. Depreciation reflects the wear and tear on a company’s assets over time, but doesn’t represent an actual cash outflow.
  • Amortization: Similar to depreciation, amortization is a non-cash expense that represents the allocation of intangible assets’ costs over time. EBITDA adds back this expense to reflect the cash flow generated from operations.

So, how do you calculate EBITDA for your company? There are a couple of ways to look at it.

  1. Revenue – Expenses (excluding interest, taxes, depreciation, and amortization) = EBITDA
  2. Net Income + Interest + Taxes + Depreciation + Amortization = EBITDA

Here’s an example:

Company X:

  • Net Income: $2.5 Million
  • Interest Paid: $370,000
  • Taxes Paid: $250,000
  • Depreciation: $125,000
  • Amortization: $50,000

EBITDA = $3,295,000

We arrived at the number above by simply adding together each of the line items listed from Company X’s financial statements. In order to calculate EBITDA accurately for your company, you will need to know all of these numbers.

Why EBITDA Matters

Companies often use EBITDA as a critical metric when evaluating their fiscal health and informing big-picture decisions. Remember that pesky layoff fear that has been haunting you? Or the exciting prospect of upgrading your equipment? This tool can help guide those and many other important decisions, such as:

  • Budgeting: EBITDA can help a company determine whether large purchases or hiring are appropriate for the next fiscal year.
  • Downsizing: Facing layoffs? EBITDA can help you determine whether layoffs are really necessary or if it’s worth it to weather whatever storm your company is facing.
  • Selling: When considering selling your company, EBITDA can prove a useful tool to demonstrate the company’s profitability to potential buyers.
  • Investing: Likewise, for private equity firms, the EBITDA metric can be used to inform any investing decisions you are considering making by not only showing the profitability of the company, but also providing a view into the growth potential of the business compared to their competitors.

The Value in Using EBITDA

While we don’t recommend relying solely on one operational performance metric to determine the fiscal health of your company, EBITDA is a valued tool for several reasons. Here’s why you should incorporate it into your reporting:

  1. Operational Efficiency: EBITDA provides insights into a company’s ability to generate cash from its core operations, highlighting areas where operational improvements can be made.
  2. Comparability: EBITDA allows for easy comparisons between companies in the same industry, as it focuses on core operations rather than financial and accounting variations.
  3. Valuation: EBITDA can be used to estimate the value of a target company. The higher the EBITDA, the more attractive the investment may be.

Strategies and Tools to Help Increase EBITDA

As you well know, there are many different areas of a business that can add to or detract from a company’s overall fiscal health. As such, there are a lot of opportunities for improving EBITDA within your own company. Here are some examples:

  • Operational Efficiency/Process Improvement: Improve operational efficiency by enhancing supply chain management, optimizing your processes, and reducing wastage. This one is really important. If you’re not sure where to start, feel free to reach out to us.

Our productivity consulting service can help you get on the right track when it comes to process improvement.

  • Technology Adoption: Embrace technology to automate processes, improve data analytics, and enhance decision-making, ultimately driving operational improvements and EBITDA growth.

For example, Microsoft 365 is an incredibly powerful tool for businesses. It can help you sidestep productivity roadblocks with ease and eliminate immense amounts of time waste within your organization.

Check out this blog post to learn more about the service we offer and how it can help you. And contact us here to get started.

  • Employee Productivity: Invest in employee training and development to enhance productivity, which can lead to higher sales and reduced labor costs.



  • Cost Optimization: Identify and reduce unnecessary costs within the company, such as excess overhead, redundant processes, or underperforming assets.
  • Revenue Growth: Implement strategies to increase sales and revenue, such as entering new markets, launching new products, or expanding the customer base.
  • Margin Expansion: Focus on increasing gross and operating margins through pricing strategies and cost-effective sourcing.
  • Capital Expenditure Management: Carefully manage capital expenditures by prioritizing investments that directly contribute to EBITDA growth and deferring those that do not.
  • Debt Restructuring: Evaluate the company’s debt structure and explore opportunities for refinancing or restructuring to lower interest expenses.
  • Mergers and Acquisitions: Seek strategic acquisitions or mergers that can generate synergies and increase EBITDA through economies of scale.
  • Working Capital Optimization: Efficiently manage working capital to reduce the cash tied up in inventory, accounts receivable, and accounts payable.

More on EBITDA

By understanding what EBITDA represents and implementing strategic initiatives to increase it, companies like yours can unlock powerful information to help guide big picture decisions and increase overall profitability. Whether through cost reduction, revenue growth, or operational efficiency improvements, the pursuit of higher EBITDA can lead to greater financial success and investor returns.

To read more about EBITDA and how to increase your company’s financial health, we highly recommend checking out The Private Equity Playbook by Adam Coffey. Jan finds this book to be incredibly informative surrounding this topic, with great insights on improving and using EBITDA within your organization.


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