Accounting glossary

EBITDA

What EBITDA measures, how it differs from net profit, and per-country prevalence in business valuation and lending for UK/AU/CA/NZ/SG SMBs in 2026.

By ExpenseFlow team
· 18 May 2026

Definition

EBITDA is earnings before interest, tax, depreciation, and amortisation. It is a profitability metric calculated as operating profit (EBIT) plus depreciation and amortisation, used to compare the core operating performance of businesses with different capital structures, tax positions, and accounting policies. EBITDA is not a recognised measure under any accounting standard but is the universal metric in private-company M&A, private-equity valuation, and asset-based lending across our target jurisdictions.

What EBITDA means in practice

For a bookkeeper, EBITDA shows up most often in two contexts: lending applications (where a senior debt facility might be sized at 3-4x trailing twelve months EBITDA) and business valuation (where an SMB might be valued at 4-7x EBITDA depending on industry and growth). Outside those contexts, EBITDA is mainly a memo line on management accounts: useful for trending operational performance across periods but not what tax is paid on or what the financial statements report.

The calculation is straightforward: operating profit plus depreciation plus amortisation. Operating profit is the line on the income statement between gross profit and profit before tax. Depreciation and amortisation are typically reported as separate expense lines or noted in the fixed-asset reconciliation. Adding them back gives EBITDA. Some practitioners also add back non-recurring items (one-off legal fees, restructuring costs) to produce “adjusted EBITDA”; this is more contested and should be done with clear disclosure of what was adjusted out.

A practical example: a UK consultancy for the year ended 31 March 2027. Revenue 380,000. Operating profit 85,000. Depreciation 8,000 (laptops and equipment over 3 years). Amortisation 2,000 (one acquired piece of software being amortised over 5 years). EBITDA = 85,000 + 8,000 + 2,000 = 95,000 (25% EBITDA margin). A lender considering an asset-based facility might offer up to 2x EBITDA (190,000) against the business; a buyer in an SMB sale might value the business at 5x EBITDA (475,000) plus working capital.

How EBITDA works by country

United Kingdom

Not a recognised metric under FRS 102 or full IFRS. UK statutory accounts do not disclose EBITDA. But it is the universal standard in UK private-company M&A, private-equity, asset-based lending, and management reporting. Most management accounts produced by UK SMBs include EBITDA as a memo line below the income statement.

Australia

Not a recognised metric under AASB. ASIC has issued Regulatory Guide 230 (Disclosing non-IFRS financial information) warning against EBITDA being presented prominently in ASIC filings without reconciliation to a recognised measure. Private companies and SMBs use EBITDA freely in M&A and lending discussions; the regulatory friction applies to publicly-listed entities only.

Canada

Not a recognised metric under ASPE or IFRS. CSA Staff Notice 52-306 governs the presentation of EBITDA and similar non-GAAP measures by listed Canadian companies, requiring reconciliation to the most comparable GAAP measure. Private companies use EBITDA freely in management accounts and M&A documents.

New Zealand

Not a recognised metric under NZ IFRS. Used in NZ M&A and asset-based lending. FMA has issued guidance for listed companies on non-GAAP measure presentation. Private companies and SMBs use EBITDA without restriction.

Singapore

Not a recognised metric under SFRS(I). Singapore Exchange Listing Rules require EBITDA to be reconciled to a recognised measure when used in listed-company communications. Private companies and SMBs use EBITDA freely in M&A and lending discussions, particularly when negotiating with the Singapore branches of regional private-equity firms.

EBITDA is derived from the income statement by adjusting net profit:

  • Net profit is the bottom-line accounting measure; EBITDA strips out interest, tax, depreciation, and amortisation.
  • Operating expenses feed into the operating profit that is the starting point for EBITDA.
  • Profit margin ratios sometimes include an “EBITDA margin” as a fourth ratio alongside gross, operating, and net.
  • Depreciation is one of the two items added back to operating profit.
  • Amortization is the other.
  • The income statement provides the raw numbers.

See also

For the income statement that produces the numbers used to derive EBITDA, see the income statement entry.

FAQ

See the answered questions above for why EBITDA is used in M&A, the criticisms of the metric, and how to calculate it from Xero or QuickBooks.

Questions, answered

Common questions

Why use EBITDA instead of net profit?

EBITDA strips out items that depend on capital structure (interest), tax policy (tax), and accounting policy (depreciation and amortisation). The result is closer to the cash-generating capacity of the core operating business and lets you compare businesses with different debt loads or different fixed-asset bases. It is the standard metric in M&A precisely because it normalises for these differences.

What's the criticism of EBITDA?

It ignores real costs. Depreciation and amortisation may be non-cash in the period but they represent the consumption of capital assets that will eventually need to be replaced. A business with high EBITDA and high CapEx requirements is not as cash-generative as the EBITDA figure suggests. Warren Buffett's famous critique: 'Does management think the tooth fairy pays for capital expenditures?'

How do I calculate EBITDA in Xero or QuickBooks?

Most platforms do not produce EBITDA directly. The calculation: operating profit (also called EBIT) plus depreciation plus amortisation. Pull operating profit from the P&L; pull depreciation and amortisation from the relevant expense lines or the fixed-asset register. Many bookkeepers calculate EBITDA in a one-line spreadsheet alongside the monthly P&L.

Keep exploring

Net profit

The bottom line of the income statement: revenue minus cost of sales minus operating expenses minus interest minus tax, representing the res

Operating expenses (OpEx)

The day-to-day costs of running a business that are not directly tied to producing the goods or services sold: salaries, rent, utilities, ma

Profit margin

A ratio measuring the percentage of revenue that converts to profit at each stage of the income-statement cascade: gross margin (gross profi

Depreciation

The accounting practice of spreading the cost of a tangible fixed asset (vehicles, equipment, fixtures, IT hardware) over its useful life as

Amortization

The accounting practice of spreading the cost of an intangible asset (software licences, goodwill, patents, customer relationships) over its

Income statement

A financial statement summarising revenue, costs of sales, gross profit, operating expenses, and net profit (or loss) over a defined account

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