What is EBITDA?

Published Wednesday 30 September 2026

Table of contents

• What does EBITDA stand for?
• Why EBITDA matters
• How to calculate EBITDA
• EBITDA calculation example
• EBITDA vs net profit
• EBITDA vs EBIT
• What is EBITDA margin?
• What is adjusted EBITDA?
• What EBITDA doesn’t tell you
• Track your EBITDA with Xero
• FAQs on EBITDA
• Related terms
• Learn more about EBITDA

Key takeaways

• EBITDA shows how much your core operations earn before interest, taxes, depreciation and amortisation
• You calculate it by adding those four items back to net profit, or depreciation and amortisation back to operating profit
• Buyers and lenders use EBITDA and adjusted EBITDA to value businesses and assess loan applications
• EBITDA leaves out asset spending and debt, so read it alongside net profit and cash flow

What does EBITDA stand for?

EBITDA stands for earnings before interest, taxes, depreciation and amortisation. It measures the profit your business makes from its core operations before you subtract those four costs.

It’s a popular way to look at business profitability because it strips out the effects of funding and tax decisions. You’ll find the figures you need on your profit and loss statement. Here’s what each part of the name covers:

• Earnings are the profit your business makes, which is your starting point
• Interest is the cost of borrowing, such as interest on loans and overdrafts
• Taxes are corporate income tax (PPh Badan) and other income taxes your business pays
• Depreciation spreads the cost of physical assets, like vehicles and machinery, over their useful life
• Amortisation does the same for intangible assets, such as software licences or trademarks

Why EBITDA matters

EBITDA gives you a view of how your core business performs, separate from how it’s funded or taxed. You’ll see it used to:

• value a business with an EV/EBITDA multiple: enterprise value (equity plus debt, minus cash) divided by EBITDA
• support a loan application, as lenders use it to check you can cover repayments
• compare businesses in the same sector that have different debt levels or tax positions
• measure operational efficiency, because it excludes financing costs and accounting choices

Say your sales grow for two years running, but EBITDA stays flat. That tells you operating costs are rising as fast as revenue, so it’s time to review pricing and spending.

How to calculate EBITDA

There are two ways to calculate EBITDA, and both give you the same answer. Choose the one that matches the figures you have.

The first formula starts with net profit:

EBITDA = Net profit + Interest + Taxes + Depreciation + Amortisation

The second starts with operating profit, which already excludes interest and taxes:

EBITDA = Operating profit + Depreciation + Amortisation

To use the first formula, follow these steps:

1. Find your net profit on your profit and loss statement.
2. Add back the interest you paid on loans and overdrafts.
3. Add back corporate income tax and other income taxes.
4. Add back depreciation and amortisation charges.

EBITDA calculation example

Here’s how both formulas work in practice. Say your furniture business reports these figures for the year:

• net profit of Rp450,000,000
• interest of Rp30,000,000
• taxes of Rp90,000,000
• depreciation of Rp60,000,000
• amortisation of Rp20,000,000

Using the first formula: Rp450,000,000 + Rp30,000,000 + Rp90,000,000 + Rp60,000,000 + Rp20,000,000 = Rp650,000,000.

To check the result, start with operating profit, which is net profit plus interest and taxes, or Rp570,000,000. Then add depreciation and amortisation: Rp570,000,000 + Rp60,000,000 + Rp20,000,000 = Rp650,000,000.

EBITDA vs net profit

Net profit is what’s left after you subtract every cost, including interest, taxes, depreciation and amortisation. EBITDA adds those four items back, so it’s usually higher than net profit when they’re positive costs.

In the example above, EBITDA of Rp650,000,000 is Rp200,000,000 higher than net profit of Rp450,000,000. EBITDA isn’t a profit figure, and you won’t see it as a line in standard financial statements. Net profit shows what your business actually keeps.

EBITDA vs EBIT

EBIT stands for earnings before interest and taxes. It keeps depreciation and amortisation in, so it reflects the cost of assets that lose value over time.

The gap between the two matters most for asset-heavy businesses. A logistics company running a fleet of trucks will see a much bigger difference between EBIT and EBITDA than a consultancy working mainly on laptops.

If you also want to account for tax, net operating profit after tax takes EBIT and subtracts the tax on it.

What is EBITDA margin?

EBITDA margin shows EBITDA as a percentage of revenue. It tells you how much operating earnings each rupiah of sales generates.

EBITDA margin = (EBITDA ÷ Revenue) × 100

Using the example above with revenue of Rp2,500,000,000: (Rp650,000,000 ÷ Rp2,500,000,000) × 100 = 26%. That means you keep Rp260 in operating earnings from every Rp1,000 of sales.

According to NYU Stern data as of January 2026, EBITDA averaged 16.56% of sales across US publicly listed companies. Industry averages vary, for example, 10.11% in general retail, 19.47% for restaurants and 35.93% in software.

These are US listed-company averages, so Indonesian small business margins may differ. Compare your margin with businesses in your own sector and with your past results, as it’s one of several ways to measure profitability.

What is adjusted EBITDA?

Adjusted EBITDA is EBITDA with one-off or non-recurring items removed, so it reflects what your business earns in a typical year. Common adjustments include:

• a one-time legal settlement
• restructuring costs
• the owner’s personal expenses run through the business
• gains or losses from selling equipment

Buyers and lenders often use adjusted EBITDA to judge a business’s ongoing earnings. Each adjustment is a judgement call, so expect them to question any add-back that lifts the figure.

Reporting rules for these measures are also changing. From 1 January 2027, PSAK 118, Indonesia’s adoption of International Financial Reporting Standard (IFRS) 18, takes effect. It requires companies that present management-defined performance measures in their financial statements to explain them and reconcile them to a defined subtotal.

Whichever standard your business reports under, a clear breakdown of each adjustment helps buyers and lenders trust your figure.

What EBITDA doesn’t tell you

EBITDA is useful, but it leaves out costs that affect your cash and long-term health. Keep these limits in mind:

• It ignores capital expenditure, the money you spend buying or upgrading assets, so use cash flow forecasting to plan for it
• It doesn’t reflect debt, so a business with large loan repayments can post strong EBITDA and still struggle to pay bills
• It isn’t standardised, as the international standard-setter chose not to define EBITDA in IFRS 18, the standard PSAK 118 adopts, so calculations vary between businesses
• It can overstate performance, and investor Warren Buffett has criticised the metric for treating the cost of replacing assets as if it weren’t real

For a fuller picture, pair EBITDA with net profit and cash flow to see what you keep. Then check your debt-to-equity ratio to see how much you owe, using your financial statements.

Track your EBITDA with Xero

Xero profit and loss reports give you the net profit, interest, tax, depreciation and amortisation figures you need to calculate EBITDA. Bank feeds keep those numbers up to date, so you can check your EBITDA margin whenever you like. Try Xero and get one month free to see your figures in real time.

FAQs on EBITDA

Here are quick answers to common questions about EBITDA.

What is a good EBITDA for a small business?

A good EBITDA is positive and growing year on year, with a margin that holds up against similar businesses in your sector. The trend over several years tells you more than any single figure.

Is EBITDA the same as gross profit?

No. Gross profit is revenue minus cost of goods sold, while EBITDA also subtracts operating expenses such as rent and salaries.

Can EBITDA be negative?

Yes. Negative EBITDA means your core operations cost more than they bring in, which is common for new businesses and a sign to review pricing and costs.

What is the debt-to-EBITDA ratio?

It’s total debt divided by EBITDA, and it shows roughly how many years of EBITDA it would take to repay your debt. Lenders use it to judge how much more you can borrow, and a lower ratio means less debt relative to earnings.

Is EBITDA used in Indonesia?

Yes. Lenders and investors use it widely, including when a business is up for sale, even though accounting standards don’t define it. From 2027, PSAK 118 adds disclosure rules for measures like EBITDA when companies present them in financial statements.

Related terms

• Net profit
• Gross profit
• Operating profit
• Amortisation
• Balance sheet

Learn more about EBITDA

• Profitability ratios
• How to increase profits
• Working capital
• Cost of goods sold