[et_pb_section fb_built=”1″ custom_padding_last_edited=”off|desktop” _builder_version=”4.27.2″ custom_margin=”0px||0px||false|false” custom_padding=”0px||0px||false|false” custom_padding_phone=”0px||||false|false” da_disable_devices=”off|off|off” locked=”off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_row column_structure=”1_3,2_3″ _builder_version=”4.27.2″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” width=”100%” custom_margin=”0px||0px||false|false” custom_padding=”0px||0px||false|false” global_colors_info=”{}”][et_pb_column type=”1_3″ module_class=”table-contents” _builder_version=”4.23″ background_color=”#f3f2f6″ custom_padding=”25px||25px||true|false” sticky_position=”top” sticky_limit_bottom=”section” sticky_position_tablet=”top” sticky_position_phone=”none” sticky_position_last_edited=”on|desktop” pac_dcm_carousel_specific_module_num=”0″ border_radii=”on|24px|24px|24px|24px” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text _builder_version=”4.23″ text_font=”||||||||” global_colors_info=”{}” background__hover_enabled=”on|desktop”][\/et_pb_text][\/et_pb_column][et_pb_column type=”2_3″ _builder_version=”4.16″ custom_padding=”|||” pac_dcm_carousel_specific_module_num=”0″ global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text admin_label=”Intro” _builder_version=”4.27.5″ header_2_font_size=”32px” custom_padding=”0px||0px||false|false” hover_enabled=”0″ header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}” sticky_enabled=”0″]<\/p>\n
EBITDA stands for earnings before interest, taxes, depreciation, and amortisation. It\u2019s a helpful financial metric used by small business owners, investors, analysts and others to figure out the financial health of a company, as well as its operational performance.<\/p>\n
Think of EBITDA as a way to get a clearer view of your company\u2019s profitability. It does this well by excluding non-operating expenses like interest payments, income taxes, depreciation<\/a> and amortisation expenses, all of which can heavily influence net income but don\u2019t necessarily show the company\u2019s true operational efficiency.<\/p>\n EBITDA is a variation of operating income calculated using a very simple formula:<\/p>\n EBITDA = Net income + Interest expenses + Tax expenses + Depreciation expense + Amortisation expense<\/em><\/strong><\/p>\n [\/et_pb_text][et_pb_image src=”https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2025\/04\/EBITDA-vs-Net-income-2.png” alt=”EBITDA vs net income explained” title_text=”EBITDA Vs Net Income 2″ align=”center” _builder_version=”4.27.4″ _module_preset=”default” hover_enabled=”0″ global_colors_info=”{}” sticky_enabled=”0″][\/et_pb_image][et_pb_text _builder_version=”4.27.5″ _module_preset=”default” hover_enabled=”0″ global_colors_info=”{}” sticky_enabled=”0″]<\/p>\n It\u2019s true that both EBITDA and net income measure your business\u2019s profitability, but they will give you quite different perspectives:<\/p>\n As an example, let\u2019s say two companies in the same industry have a similar operating profit but differ in net income because of different financing structures or tax rates. EBITDA helps strip away these variables to reveal their underlying profitability and operating income.<\/p>\n EBITDA gives small business owners a clearer snapshot of a company\u2019s financial health by looking into their core activities. By removing costs outside the company\u2019s control, like tax rates or financing costs, owners can more accurately determine and compare operating profit over time.<\/p>\n Small businesses with positive EBITDA are generally seen as financially healthier since it suggests their core operations generate sufficient earnings to cover costs before financing and tax obligations. It also helps confirm whether or not the company can service debt and attract investors.<\/p>\n The EBITDA margin is another valuable metric derived from EBITDA. Here\u2019s what it looks like:<\/p>\n EBITDA Margin = EBITDA \/ Total Revenue \u00d7 100<\/em><\/strong><\/p>\n Companies with a higher EBITDA margin usually have lower operating expenses than their revenue. In other words, their operations are more efficient.<\/p>\n Although EBITDA is highly valuable, it does have its limitations.<\/p>\n To counteract these limitations, businesses can use adjusted EBITDA (normalised EBITDA) to factor in one-off or unusual expenses and gains. This is a smart way to get the clearest possible picture of ongoing financial performance using this metric.<\/p>\n Some business owners use EBITDA to figure out the enterprise value of their company. Investors also regularly apply an EBITDA ratio (or multiple) relevant to the industry to estimate a company\u2019s valuation. No matter what stage of business growth<\/a>, a company that generates higher EBITDA can attract higher valuation multiples, making it more attractive for potential buyers or investors.<\/p>\n Let\u2019s consider two companies in the same sector:<\/p>\nHow to calculate EBITDA<\/h2>\n
Breaking down the EBITDA calculation<\/h2>\n
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EBITDA vs net income: What’s the difference?<\/h2>\n
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Why is EBITDA useful for small businesses?<\/h2>\n
EBITDA margin for evaluating profitability<\/h2>\n
Limitations of EBITDA<\/h2>\n
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EBITDA and company valuation<\/h2>\n
Example: EBITDA in practice<\/h2>\n