Financial performance can be complex, and EBITDA is one of the most widely used metrics for measuring profitability. However, without proper calculations and context, it can sometimes create a misleading picture of a company’s true financial state.
A common issue with EBITDA is that it does not factor in non-operating expenses like taxes, interest, or capital expenditures. This can result in inflated profitability figures, making it difficult to assess a company’s long-term financial stability.
In the Philippines, Globe Telecom reported a 7% increase in EBITDA, reaching ₱86.6 billion in 2024, highlighting its operational efficiency. This growth was driven by strong cost management strategies and sustained demand for digital services, which reflects the company’s financial stability.
Understanding how to compute EBITDA and its implications is key to making informed business decisions. This article will guide you through its definition, calculations, and how software solutions can improve financial analysis.
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What is EBITDA?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It represents a company’s earnings before these financial deductions. EBITDA is often used to evaluate overall financial performance and serves as an alternative to net profit calculations.
While EBITDA helps measure profitability, it does not account for capital expenditures like property, equipment, and factory investments. Additionally, it excludes debt-related costs by adding back interest and taxes, so it’s less reflective of actual cash flow.
Despite these limitations, EBITDA is significant in accounting because it shows earnings before financial adjustments and accounting reductions. It is commonly calculated using EBITDA formulas, starting with operating profit (EBIT) and adding back depreciation and amortization, offering a clearer view of core business profitability.
Components of EBITDA
EBITDA consists of key components found in a company’s financial statements. These components help analysts evaluate a business’s profitability before considering financial structure, tax obligations, and accounting adjustments.
1. Earnings (revenue)
Revenue is the total income a company generates from sales and services. It shows how well a business performs and its potential for future growth. Higher revenue means more opportunities for reinvestment or shareholder payouts, which affects stock value. Revenue serves as the starting point for calculating EBITDA.
2. Interest (loan costs)
Interest is the cost a company pays on borrowed money, which varies based on loan terms, risk, and market conditions. Since financing methods differ across companies, interest is excluded from EBITDA to ensure fair comparisons. By removing interest expenses, analysts can focus on a company’s core profitability without the impact of debt.
3. Taxes (corporate tax liabilities)
Businesses pay taxes based on earnings after deducting expenses like salaries and operating costs. Tax rates depend on government policies, not business performance, so EBITDA calculations exclude them. This helps analysts compare businesses fairly without tax-related distortions.
4. Depreciation and amortization (asset value reduction)
Depreciation applies to physical assets like buildings and machines, while amortization applies to intangible assets like patents. These costs are spread out over time to reflect asset usage. Since EBITDA focuses on operating performance, depreciation, and amortization are added back to earnings. This gives a clearer view of a company’s profitability.
Benefits and Functions of EBITDA
Understanding EBITDA is crucial for business owners, investors, and financial analysts as it provides a clear picture of a company’s profitability. This metric helps assess financial performance more accurately by excluding non-operational costs and accounting adjustments.
With top accounting software in 2025, businesses can automate EBITDA calculations, making financial analysis faster and more precise. Below are the key benefits of EBITDA in accounting and why it remains a valuable tool for financial evaluations.
1. Provides a clear valuation of a business
EBITDA helps determine a company’s true financial value by focusing on core earnings before deductions. Removing interest, taxes, depreciation, and amortization offers a cleaner view of operational performance.
This allows potential buyers and investors to assess a company’s real earning power without distortions from different tax policies or financial structures. Businesses can use the EBITDA formula to benchmark their financial health against industry standards.
2. Helps compare companies across industries
Since EBITDA excludes financial and accounting decisions, businesses can compare profitability across different industries. Companies with varying capital structures, tax rates, and depreciation methods can be evaluated on an even playing field.
This is especially useful for investors analyzing companies in diverse sectors to identify the best investment opportunities. The EBITDA margin formula enables a straightforward assessment of operational efficiency.
3. Widely used by investors and stakeholders
Private equity firms, shareholders, and financial analysts frequently rely on EBITDA margin as a valuation tool. Since it is a globally accepted metric, buyers and sellers can easily compare businesses based on their earning potential.
This helps stakeholders make informed decisions about mergers, acquisitions, or investments. Understanding how to compute EBITDA ensures businesses can present strong financial insights to attract investors.
4. Aids in financial decision-making
Companies use the EBITDA coverage ratio to measure their ability to cover interest payments, making it a valuable tool for debt analysis. It also helps businesses assess cash flow availability for reinvestment, expansion, or operational improvements.
Focusing on core profitability allows companies to strategize better without being misled by accounting variations. Mastering EBITDA allows businesses to optimize financial planning and long-term growth strategies.
How to Calculate EBITDA
EBITDA is a financial metric used to measure a company’s profitability before accounting for interest, taxes, depreciation, and amortization. There are two main methods for calculating EBITDA, with the key difference being the starting point—one method begins with operating income, while the other starts with net income.
The first method follows the formula:
EBITDA = Operating Income + Depreciation & Amortization
Operating income represents a company’s profit after deducting operating expenses such as wages and the cost of goods sold, excluding interest and taxes. Since these costs have already been removed, only depreciation and amortization need to be added back to determine the meaning of EBITDA in accounting.
The second method uses the formula:
EBITDA = Net Income + Taxes + Interest + Depreciation & Amortization
This approach starts with net income and adds back tax and interest expenses to calculate operating income before non-cash costs. The difference between these formulas lies in including non-operational items or one-time expenses, which can affect the final calculation.
Both formulas effectively determine a company’s earnings potential, though the results may vary. Understanding how to compute EBITDA helps businesses assess their financial health, compare profitability across industries, and make better strategic decisions.
Maximize EBITDA Management Efficiency with HashMicro Accounting Software
HashMicro’s Accounting Software offers a powerful solution for managing EBITDA, ensuring accuracy and efficiency in financial performance tracking. One key feature is automated EBITDA calculations, which are seamlessly integrated into the system to monitor real-time revenue, expenses, and profitability analysis.
Experience the capabilities of HashMicro’s Accounting Software through a free demo. Explore how automation optimizes EBITDA reporting, financial forecasting, and operational cost tracking, allowing businesses to make data-driven decisions while maintaining profitability.
Why choose HashMicro? Our accounting software automates critical EBITDA tasks like revenue tracking, expense categorization, and depreciation adjustments, reducing manual errors and enhancing financial transparency. Its seamless integration with financial and operational modules provides a complete solution for managing profitability efficiently.
Below are some of the key features of HashMicro’s Accounting Software for EBITDA management:
- Automated Accounting & Financial Reporting: HashMicro simplifies financial management with automated reporting, customizable statements, and flexible period comparisons. These features provide precise tracking, enabling businesses to make informed decisions with confidence.
- Seamless Bank Integration & Auto Reconciliation: Automatically syncing bank transactions eliminates manual data entry and reduces errors. This integration enhances financial accuracy, saves valuable time, and ensures records are always up to date.
- Multi-Level Analytical Reporting: Gain deeper financial insights with structured reporting across projects, branches, and departments. Businesses can compare performance across different segments, allowing for smarter financial planning and resource allocation.
- Profit & Loss vs Budget & Forecast Tracking: Real-time financial comparisons help businesses evaluate actual performance against budgets and forecasts. By identifying variances early, companies can make proactive adjustments to stay on track with financial goals.
- Cash Flow & Forecast Management: Detailed cash flow analysis and intuitive forecasting tools, like S-curve visualizations, provide better control over finances. Businesses can anticipate future cash needs, optimize resource management, and improve financial stability.
- Financial Ratios & Equity Movement Analysis: Assess key financial indicators such as profitability, liquidity, and ownership changes with advanced reporting tools. These insights support better decision-making and long-term business sustainability.
- Automated Currency Updates & Intercompany Consolidation: Real-time currency updates simplify international transactions, while intercompany consolidation streamlines financial reporting for multi-entity businesses. These features enhance transparency and improve financial efficiency.
- 3-Way Matching & Custom Invoicing: Automate invoice matching with delivery and sales orders to minimize procurement discrepancies. Customizable invoice templates ensure flexibility, accuracy, and compliance in financial documentation.
These capabilities improve financial accuracy, enhance business insights, and optimize decision-making. With HashMicro’s Accounting Software, companies can streamline EBITDA calculations, minimize financial risks, and strengthen long-term profitability.
Conclusion
EBITDA is a key profitability metric that helps businesses assess their financial health and growth potential. By providing a clearer picture of earnings before financial deductions, it allows companies to compare valuations and make informed decisions.
HashMicro’s Accounting Software offers a comprehensive tool for automating financial calculations for businesses looking for a reliable solution. Features like real-time reporting, automated depreciation tracking, and seamless integration simplify EBITDA formula calculations while improving overall financial management.
Optimize your EBITDA analysis and enhance financial efficiency with an intelligent accounting solution. Try HashMicro’s Accounting Software free product tour today and experience how automation can simplify your business’s financial operations!
