EBITDA (earnings before interest, taxes, depreciation and amortisation)
Learn what EBITDA means, how to calculate it with S$ examples, and when it helps or misleads your decisions.
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- EBITDA stands for earnings before interest, taxes, depreciation and amortisation, and shows the profit your day-to-day operations generate
- You calculate it by adding interest, taxes, depreciation and amortisation back to net profit, or depreciation and amortisation back to operating profit
- Lenders and investors use EBITDA to value businesses and judge how much debt a company can support
- EBITDA leaves out capital spending and debt costs, so read it alongside your cash flow and net profit
What does EBITDA stand for?
EBITDA stands for earnings before interest, taxes, depreciation and amortisation. It measures the profit your core operations make before financing costs and tax, with asset write-downs added back.
Each part of the name tells you what to add back to your profit:
- Earnings means your net profit, the bottom line on your profit and loss statement
- Interest means the interest you pay on loans and overdrafts
- Taxes means corporate income tax, which Singapore charges at a flat 17% of chargeable income
- Depreciation means the cost of physical assets, such as vans or equipment, spread over their useful life
- Amortisation means the cost of intangible assets, such as software licences or trademarks, spread over their useful life
Why EBITDA matters
EBITDA matters because it shows whether your business model makes money, separate from how you fund it or what tax you pay. That makes it one of the first numbers lenders and buyers look at.
Knowing this number helps you:
- value a business, since buyers often price a company as a multiple of its operating earnings
- apply for a loan, as banks check whether your operating earnings can cover repayments
- compare your performance with competitors that have different loans or tax positions
- spot how efficiently your day-to-day operations run as you grow
How to calculate EBITDA
You calculate it by starting with a profit figure and adding back the costs it excludes. Your profit and loss report has everything you need.
Follow these steps:
- Pull your profit and loss report for the period you want to measure
- Find your net profit or operating profit
- Note the interest, tax, depreciation and amortisation expenses for the same period
- Add back the relevant costs using one of the formulas below
The Corporate Finance Institute (CFI) sets out two standard formulas. Use the first if you start from net profit:
EBITDA = Net profit + Interest + Taxes + Depreciation + Amortisation
Use the second if you start from operating profit, which already excludes interest and tax:
EBITDA = Operating profit + Depreciation + Amortisation
EBITDA calculation example
Here's how both formulas work in practice. Say you run a design studio in Singapore, and your profit and loss report for the year shows:
- S$45,000 in net profit
- S$3,000 in interest on a business loan
- S$9,000 in corporate income tax
- S$6,000 in depreciation on computers and office furniture
- S$2,000 in amortisation on design software licences
Using the first formula: S$45,000 + S$3,000 + S$9,000 + S$6,000 + S$2,000 = S$65,000.
To check the answer, start from operating profit. Your operating profit is S$57,000 (net profit plus interest and tax), so S$57,000 + S$6,000 + S$2,000 = S$65,000. Both formulas give an EBITDA of S$65,000.
EBITDA vs net profit
EBITDA is usually higher than net profit because it adds back interest, tax, depreciation and amortisation. It can come out lower in some years, for example, when your business records a tax credit instead of a tax expense.
The two numbers answer different questions. Net profit tells you what's left after every cost. EBITDA tells you how much your operations earn before financing costs and tax, ignoring asset write-downs.
Picture two cafés with the same sales and running costs. One took out a bank loan to fit out its shop, so its net profit is lower. Their EBITDA matches, which shows the cafés perform equally well day to day.
EBITDA vs EBIT
EBIT, or earnings before interest and taxes, adds back only interest and tax. EBITDA also adds back depreciation and amortisation, so it's higher for any business that owns depreciating assets.
EBIT gives a truer view if your business relies on equipment or vehicles, because it counts the cost of wearing those assets out. Net operating profit after tax (NOPAT) goes a step further by deducting tax from operating profit.
EBITDA vs cash flow
EBITDA and cash flow aren't the same. EBITDA counts earnings when you make them, while cash flow tracks the money that actually moves in and out of your bank account.
According to CFI's cash flow guide, cash flow measures pick up items that EBITDA leaves out:
- changes in receivables, the money customers owe you
- changes in payables, the bills you haven't paid yet
- changes in inventory, the cash tied up in stock
- capital expenditure (capex), the money you spend on equipment and other long-term assets
Say a customer owes you S$20,000 at year end. That sale lifts your earnings, but the cash won't reach your bank until the invoice is paid.
What is EBITDA margin?
EBITDA margin shows your operating earnings as a percentage of revenue. It's a type of profit margin that tells you how much operating profit you keep from every dollar of sales.
EBITDA margin = (EBITDA ÷ Revenue) × 100
If the design studio in the example above has revenue of S$250,000, its EBITDA margin is (S$65,000 ÷ S$250,000) × 100 = 26%.
What counts as a healthy margin depends on your industry. January 2026 data from New York University's Stern School of Business (NYU Stern) shows these EBITDA-to-sales margins by sector:
- 5.40% for grocery and food retail
- 7.49% for auto and truck
- 35.93% for software
- 16.56% for the total market
These figures cover US-listed companies, so treat them as a guide to how much margins vary by sector. For a benchmark that fits a Singapore small business, compare yourself with similar local businesses in your industry.
What EBITDA doesn't tell you
EBITDA shows operating performance, but it leaves out costs that affect the cash you have to run your business. Use it alongside other ways to measure profitability.
It ignores capital spending
Because EBITDA adds back depreciation, it doesn't reflect the cash you spend replacing equipment or vehicles. A business that needs regular upgrades can look more profitable than it is.
It leaves out debt costs
Interest is excluded, so the figure can look healthy even when loan repayments are putting pressure on your bank balance. Check your debt separately before you borrow more.
It isn't standardised
Singapore Financial Reporting Standards (International), or SFRS(I), are based on International Financial Reporting Standards (IFRS) Accounting Standards. Neither set defines EBITDA, so companies can calculate it in different ways, especially adjusted EBITDA with extra add-backs.
IFRS 18 applies to annual periods beginning on or after 1 January 2027. It brings management-defined performance measures, such as adjusted EBITDA, into the notes to the financial statements, where companies must explain and reconcile them.
It can overstate performance
Warren Buffett is one of the measure's best-known critics. In the 2002 Berkshire Hathaway shareholder letter, he argued that depreciation is a real expense. You pay for the asset upfront, before it earns anything for you.
How to use EBITDA in your business
This measure is most useful when you track it regularly and read it next to other numbers. These steps help you turn it into better decisions.
1. Track your EBITDA over time
Calculate it every month or quarter and watch the trend. A rising figure shows your operations are becoming more profitable as you grow.
2. Compare your margin with your industry
Once you know your margin, ask your accountant which local benchmarks fit your sector. Any gap against your peers shows you which costs to review first.
3. Prepare for conversations with lenders
Before you apply for finance, check your operating earnings against your existing borrowing. Lenders often use debt-to-EBITDA to judge how much more debt your business can carry.
4. Pair EBITDA with cash flow and other ratios
Review it next to your cash flow and net profit. Other profitability ratios, such as gross margin, show where your costs sit.
Track your EBITDA with Xero
Xero brings your accounting data into easy-to-read financial reports, so you can work out your operating earnings whenever you need them. Your profit and loss report shows net profit alongside expense lines such as interest and depreciation. Automated bank feeds keep those figures up to date.
You can share reports with your accountant in real time and walk into a lender meeting with numbers you trust. Sign up for Xero today and get one month free to see where your business stands.
FAQs on EBITDA
These answers cover more questions from a Singapore small business perspective.
What is a good EBITDA for a small business?
A good figure is positive and high enough to cover your loan repayments, tax and asset replacement with money left over. The more headroom you have, the easier it is to invest or borrow.
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 salaries.
Can EBITDA be negative?
Yes. It means your operating costs are higher than your revenue. This can happen in a new business's early months or during a slow trading period.
What is the debt-to-EBITDA ratio?
It's your total debt divided by your EBITDA. For example, S$130,000 of debt against EBITDA of S$65,000 gives a ratio of 2. That means about two years of operating earnings would clear the debt.
Is EBITDA used in Singapore?
Yes. Banks and other lenders use it in loan assessments, and investors and buyers use it to value businesses, even though SFRS(I) doesn't define it.
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.