EBITDA (earnings before interest, taxes, depreciation and amortisation)

Published Wednesday 30 September 2026

Table of contents

• What is EBITDA?
• Why EBITDA matters
• How to calculate EBITDA
• EBITDA calculation example
• EBITDA vs net profit
• EBITDA vs EBIT
• EBITDA vs cash flow
• What is EBITDA margin?
• EBITDA and business valuation
• 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 stands for earnings before interest, taxes, depreciation and amortisation, and it measures the profit your day-to-day operations make
• You can calculate it from net profit by adding back all four items, or from operating profit by adding back depreciation and amortisation
• Buyers and lenders use EBITDA to value businesses and assess loan applications
• EBITDA ignores capital spending and debt, so pair it with net profit and cash flow for a full picture

What is EBITDA?

EBITDA stands for earnings before interest, taxes, depreciation and amortisation. It measures your business’s core profitability before financing costs, tax and asset write-downs.

Each part of the name covers a different line in your accounts:

• Earnings means your net profit, the bottom line on your profit and loss statement
• Interest covers what you pay on loans, overdrafts and other borrowing
• Taxes means the corporate income tax your business pays to the Inland Revenue Board of Malaysia (LHDN)
• Depreciation spreads the cost of physical assets such as vehicles, equipment and machinery over their useful life (see how depreciation works)
• Amortisation does the same for intangible assets such as patents, trademarks and software licences (read more on amortisation)

Picture two cafés with identical sales and costs. One bought its coffee machines with a bank loan, and the other used the owner’s savings. The loan adds interest costs, but EBITDA shows both cafés run equally well.

Why EBITDA matters

EBITDA matters because it gives you a consistent measure of how your operations perform. It helps you:

• show buyers and investors what your business could be worth, so it’s useful to know how to value a business before you sell
• prove to lenders that your business earns enough to cover loan repayments
• compare your business with others on a like-for-like basis, whatever their financing or tax set-up
• track whether your core operations are becoming more profitable over time

Rising sales alone don’t show whether your operations are becoming more efficient. EBITDA shows whether more revenue is turning into more operating profit.

That makes it a steady benchmark even if you’re not planning to sell or borrow. You can check it each year to see how your day-to-day performance is trending.

How to calculate EBITDA

You can calculate EBITDA in four steps using figures from your profit and loss statement. You can start from net profit or from operating profit, depending on which formula you use.

1. Open your profit and loss statement for the period you want to measure
2. Find your net profit, or your operating profit if you’re using formula 2
3. Find the lines for interest, tax, depreciation and amortisation
4. Add those figures back using one of the formulas below

Formula 1 starts from net profit:

EBITDA = net profit + interest + taxes + depreciation + amortisation

This formula adds back the four items EBITDA excludes. Net profit sits at the bottom of your profit and loss report, interest sits in finance costs, and depreciation and amortisation sit in operating expenses.

Formula 2 starts from operating profit:

EBITDA = operating profit + depreciation + amortisation

This formula is often quicker because operating profit is already calculated before interest and tax. Operating profit appears after cost of sales and operating expenses, but before interest and tax.

EBITDA calculation example

Here’s a worked example using formula 1. Imagine your profit and loss statement shows these figures for the year:

• RM45,000 net profit
• RM3,000 interest paid
• RM9,000 taxes
• RM6,000 depreciation
• RM2,000 amortisation

Applying the formula:

EBITDA = RM45,000 + RM3,000 + RM9,000 + RM6,000 + RM2,000 = RM65,000

Your business generated RM65,000 from its core operations during the year, before financing, tax and asset costs.

You can check this with formula 2. If your operating profit was RM57,000 (net profit plus interest plus taxes: RM45,000 + RM3,000 + RM9,000), then:

EBITDA = RM57,000 + RM6,000 + RM2,000 = RM65,000

EBITDA vs net profit

The difference between EBITDA and net profit is what gets deducted. Net profit is what’s left after every cost, including interest, tax, depreciation and amortisation, while EBITDA adds those four items back.

So EBITDA is equal to or higher than net profit whenever interest, tax, depreciation and amortisation are positive. In the example above, net profit was RM45,000 and EBITDA was RM65,000.

Net profit shows what’s left for you after every expense. EBITDA shows what your operations generate before financing, tax and asset costs, so each answers a different question about your business.

EBITDA vs EBIT

EBIT stands for earnings before interest and taxes. It works like EBITDA but keeps depreciation and amortisation as costs.

That makes EBITDA handy when you compare businesses with very different asset bases, such as a software company and a manufacturer. If your business relies on expensive equipment that needs regular replacement, EBIT may give you a more realistic view of profit.

Here’s how EBITDA, EBIT and earnings before tax (EBT) compare:

• EBITDA adds back interest, tax, depreciation and amortisation
• EBIT adds back interest and tax, and keeps depreciation and amortisation as costs
• EBT adds back tax only, and keeps interest, depreciation and amortisation as costs

EBITDA vs cash flow

EBITDA measures operating profit, while cash flow tracks the money moving in and out of your bank account. A business can show healthy EBITDA and still run short of cash.

That gap exists because EBITDA leaves out:

• capital expenditure, such as buying new equipment or vehicles
• customers paying late, which ties up cash in unpaid invoices
• stock building up, which ties up cash on your shelves
• the tax and interest you actually pay during the period

Analysts sometimes use EBITDA minus capital expenditure as a stricter measure, because it accounts for cash you reinvest in assets. To see what’s coming in the months ahead, forecast your cash flow alongside tracking EBITDA.

What is EBITDA margin?

EBITDA margin is your EBITDA as a percentage of total revenue. It shows how much of every ringgit your business earns becomes operating profit.

The formula is:

EBITDA margin = (EBITDA / total revenue) x 100

For example, if your EBITDA is RM65,000 and your total revenue is RM250,000, your EBITDA margin is 26%. For every RM1 of revenue, your business keeps 26 sen in operating profit.

What counts as a healthy EBITDA margin depends on your industry. NYU Stern’s January 2026 margins dataset puts the average EBITDA-to-sales ratio across nearly 6,000 US-listed companies at 16.56%. Restaurants average 19.47% and trucking averages 15.58%.

These are large US public companies, so Malaysian small business margins may differ. Track your own margin over time and compare it with other profitability ratios for a fuller view.

EBITDA and business valuation

Buyers often value a small business by multiplying its earnings by a multiple, using EBITDA or adjusted EBITDA as the earnings figure. The multiple depends on your industry, growth, risk and customer base.

A business with steady growth and a broad customer base usually earns a higher multiple than one that relies on a single client. Because EBITDA sits before tax, some buyers also look at net operating profit after tax to see what the business earns once tax is paid.

Adjusted EBITDA

Adjusted EBITDA is EBITDA with one-off or non-business items removed, so it better reflects ongoing performance. Buyers and lenders often ask for it during a sale or loan application.

Common adjustments remove:

• a one-off legal settlement
• restructuring costs
• the owner’s personal expenses run through the business
• one-off gains, such as the profit from selling an asset

Ask your accountant which adjustments are legitimate for your business. Buyers and lenders will question any that look like they inflate profit.

What EBITDA doesn’t tell you

EBITDA leaves out some real costs, so it works best as one measure among several. Here are the main gaps to watch for:

• It ignores capital expenditure. A business with high EBITDA but heavy equipment spending may have far less cash than the figure suggests.
• It hides debt levels. Two businesses with the same EBITDA can carry very different debt, so check your gearing ratio alongside it.
• It isn’t standardised. EBITDA isn’t defined under Malaysian Financial Reporting Standards (MFRS), which follow IFRS Accounting Standards, and IFRS 18 doesn’t define it either, so businesses may calculate it in different ways.
• It can flatter results. In his 2000 letter to Berkshire Hathaway shareholders, Warren Buffett questioned whether management thinks the tooth fairy pays for capital expenditure.

Use EBITDA alongside net profit and cash flow to build a complete picture of your finances. Regular financial reporting brings these measures together so you can read them side by side.

Track your EBITDA with Xero

Calculating EBITDA starts with accurate, up-to-date figures. Xero profit and loss reports give you the numbers you need: net profit, interest, tax, depreciation and amortisation.

With your finances in one place, you can track EBITDA over time and make confident decisions about your business. Pick a plan and get one month free to start tracking your EBITDA.

FAQs on EBITDA

These answers cover common questions small business owners ask about EBITDA.

What is a good EBITDA for a small business?

There’s no single good EBITDA figure, because it depends on your industry, size and growth stage. Focus on your EBITDA margin and whether it improves year on year.

Is EBITDA the same as gross profit?

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

Can EBITDA be negative?

Yes. Negative EBITDA means your core operations cost more than they bring in, which is common for early-stage businesses or during heavy investment.

What is the debt-to-EBITDA ratio?

The debt-to-EBITDA ratio divides your total debt by EBITDA to show roughly how many years it would take to repay that debt from EBITDA. A lower ratio signals less risk to lenders.

Is a 20% EBITDA margin good?

A 20% margin sits above the 16.56% average across US-listed companies in NYU Stern’s January 2026 data. Whether it’s strong for you depends on your industry, so compare it with businesses in your sector.

Is EBITDA used in Malaysia?

Yes, Malaysian businesses use it in valuations, mergers and acquisitions, and bank lending. Because Malaysian Financial Reporting Standards (MFRS) don’t define it, always disclose how you calculated your figure.

Related terms

• Operating profit
• Net profit margin
• Free cash flow
• Capital expenditure

Learn more about EBITDA

• How to value a company
• What is profit margin
• Financial statements explained
• Accumulated depreciation
• Gross profit margin