EBITDA

Q: Is EBITDA the same as profit?

No. EBITDA is a measure of operating performance that adds back interest, tax, depreciation and amortisation. Net profit is what remains after all of those are deducted, so it's almost always lower and reflects what the business actually keeps.

2 min read

= Operating profit + D&AQuick formula

Pre-financingWhat it strips out

In plain terms

EBITDA stands for earnings before interest, tax, depreciation and amortisation. It starts with your operating profit and adds back four costs that say little about how well the core business actually trades: interest (a financing choice), tax (a function of where and how you're structured), depreciation and amortisation (non-cash accounting charges that spread the cost of assets over time).

Strip those out and you get a clean-ish view of the cash your operations generate before financing and accounting decisions cloud the picture. That makes it easier to compare two businesses, or to compare your own performance year on year.

How it's calculated

There are two common routes to the same number:

Bottom-up: Net profit + interest + tax + depreciation + amortisation.
Top-down: Operating profit + depreciation + amortisation.

For example, a wholesaler with £900,000 turnover reports operating profit of £110,000. Add back £25,000 of depreciation on its vans and racking and £5,000 of amortisation, and EBITDA is £140,000. That £140,000 is the figure a lender uses to ask the real question: how much debt can this business carry?

Why it matters to your business

Lenders lean on EBITDA because it approximates the cash available to service debt before the cost of that debt is counted. They commonly express borrowing as a multiple of EBITDA, and check interest cover — EBITDA divided by interest cost — to see how much headroom you have. It also feeds the debt-service coverage ratio.

Knowing your own EBITDA helps you walk into a finance conversation with a realistic sense of what you can afford. If your EBITDA is £140,000, a lender is unlikely to be comfortable with repayments that swallow most of it, because that leaves nothing for tax, capital expenditure or a bad month.

The limits of EBITDA

EBITDA is useful, not gospel. By design it ignores the cost of debt, the tax you genuinely have to pay, and the capital you must spend to keep assets working. A haulier with a heavily worn fleet can show healthy EBITDA while quietly heading for a large replacement bill that EBITDA simply doesn't see.

It also says nothing about timing: a business can be EBITDA-positive yet short of cash because customers pay late. That's why lenders read it alongside cash flow, working capital and the balance sheet rather than treating it as the whole story.

Frequently asked questions

Is EBITDA the same as profit?

No. EBITDA is a measure of operating performance that adds back interest, tax, depreciation and amortisation. Net profit is what remains after all of those are deducted, so it's almost always lower and reflects what the business actually keeps.

Is EBITDA the same as cash flow?

Not quite. EBITDA ignores changes in working capital and capital spending, so a business can have strong EBITDA but weak cash flow if customers pay slowly or it's reinvesting heavily. Lenders read the two together.

Why do lenders use EBITDA multiples?

Because EBITDA approximates the recurring cash a business produces, lenders cap borrowing at a sensible multiple of it to keep repayments affordable. The acceptable multiple varies by sector, asset quality and how predictable the earnings are.