EBITA meaning, formula and calculation: a guide for businesses

Imagine having a simple yet reliable financial metric that cuts through the noise and shows how well your business is performing. That’s exactly what EBITA does. EBITA stands for “earnings before interest, tax, and amortisation” and it creates a focused snapshot of your business’s profitability and efficiency. 

By knowing how to calculate your EBITA, you can present a strong narrative that demonstrates your business’s value. Keep reading to learn everything you need to know about EBITA, how to calculate it, how it differs from other financial metrics, and its limitations. 

What is EBITA?

EBITA is a business metric that measures financial performance by focusing on earnings before accounting for interest, taxes, and amortisation. It highlights the core performance of your operations without the influence of loans, tax policies, and non-cash expenses.  

To understand what EBITA means, let’s break ‌down the acronym into its components:

• Earnings. This is your company’s monthly or quarterly net income.

• Before interest. Interest is the money you pay to lenders on top of the principal. Interest is excluded to highlight operational performance rather than financing decisions.

• Taxes. Singapore corporate taxes and other levies are left out to keep the focus on your business’s efficiency rather than the financial impact of government policies.

• Amortisation. Amortisation is the process of spreading out the cost of an intangible asset, like a patent, over its useful life.¹ For example, if you develop proprietary software for S$50,000 and expect to use it for 5 years, the annual amortisation amount is S$10,000. EBITA would exclude this as it is a non-cash expense tied to an intangible asset. 

EBITA in business: why is it important? 

Calculating EBITA is a critical part of starting a business because it reflects your company’s performance based on day-to-day operations, minus the impact of non-cash expenses like debt or amortisation. Here are some important use cases for EBITA:

• Cash flow potential. EBITA shows earnings without amortisation costs. Asset-light businesses can use EBITA to get a clearer view of earnings that could potentially be converted into dividends or reinvested in the business.   

• Startup valuations. EBITA is an important metric for startup fundraising or obtaining venture capital. Many potential investors use a variation called the EBITDA to compare startups of similar size and scope within the same industry. 

• Benchmarking against competitors. You can use EBITA to compare your performance against companies with similar operations, customers, and profit margins.

• Obtaining business loans. If you’re planning to expand overseas or make other major investments, you might need a loan or line of credit. EBITA helps potential lenders calculate your debt service coverage ratio and determine your creditworthiness.

EBITA: calculations and metrics

Calculating EBITA is fairly straightforward. Just make sure you have your current financial statements ready — specifically your income statement and balance sheet — before you begin.

EBITA formula

To calculate your EBITA, you can choose from two formulas. Whichever method you choose, it’s important to stick with it for consistency over time. 

Direct method

The direct method for calculating EBITA subtracts the cost of goods sold (COGS) and operating expenses (excluding amortisation) from the company’s total revenue. The formula is as follows: EBITA = Total Revenue – COGS – (Operating Expenses - Amortisation)

Suppose your startup has the following financial details:

• Revenue: S$200,000

• Cost of Goods Sold (COGS): S$80,000

• Operating expenses (excluding amortisation): S$50,000

• Amortisation: $10,000

Using the formula EBITA = Total Revenue - (COGS + Operating Expenses - Amortization)

EBITA = $200,000 - ($80,000 + $50,000 - $10,000) EBITA = $200,000 - $120,000 EBITA = $80,000 

Indirect method

Sometimes, companies don’t provide a detailed breakdown of operating expenses or cost of goods sold in their financial statements. In these cases, EBITA can be calculated using the indirect method. 

To do this, locate earnings before tax (EBT) in your income statement or other financial reports. Then, add your interest and amortisation costs to that number.

The formula looks like this: EBITA = EBT + Interest Expense + Amortisation Expense

Suppose your startup has the following financial details:

• Net income (after tax): S$40,000

• Taxes paid: S$20,000

• Interest paid: S$10,000

• Amortisation: S$10,000

Using the formula: EBITA = Net Income + Taxes + Interest + Amortisation

EBITA = $40,000 + $20,000 + $10,000 + $10,000 EBITA = $80,000

Your EBITA is still $80,000, showing the same result as the direct method but calculated using different metrics.

What is EBITA margin?

The EBITDA margin is a company’s earnings before interest, tax, and amortisation, expressed as a percentage of its total revenue.² 

The formula for EBITA margin is: EBITA Margin = EBITA / Total Revenue x 100

Using the previous example, where your company’s EBITA is S$80,000 and total revenue is S$200,000:

EBITA Margin = ($80,000 ÷ $200,000) × 100 EBITA Margin = 40%

This means 40% of your revenue translates into operating profit before interest, taxes, and amortisation.

What is adjusted EBITA?

Adjusted EBITA is an EBITA calculation that excludes one-time, non-recurring, or unusual expenses that might skew the results. It’s especially useful for comparing businesses because it standardises earnings, making it easier to assess true operational performance across different companies.³

The formula for adjusted EBITA is: Adjusted EBITDA = EBITDA +/- Adjustments

To start, calculate for EBITDA by using the indirect method.  Next, adjust for any one-time, non-recurring expenses, like legal fees, stock-based compensation and foreign exchange gains and losses. You’ll also want to include any unique expenses specific to your business that aren’t typical for companies in your industry.

Let’s return to our previously calculated EBITA where: 

Net Income (after tax): $40,000

Taxes paid: $20,000

Interest paid: $10,000

Amortisation: $10,000

EBITA = $80,000

However, in the past year, you’ve also had the following one-time expenses:

• Legal settlement where you paid S$4,000 in legal fees

• Stock-based compensation worth S$8,000 to employees who participated in a special project. While this is a legitimate cost, it’s technically a non-cash expense that can be excluded from the adjusted EBITA to show cash-based profitability.

• Foreign exchange losses worth S$3,000 during a rare fluctuation in exchange rates

Using the formula Adjusted EBITA = EBITA + Adjustments

Adjusted EBITA = $80,000 + $4,000 + $8,000 + $3,000 Adjusted EBITA = $95,000

Your Adjusted EBITA of $95,000 shows your operational profitability without the impact of these one-time expenses.

Remember to document what you’ve included in your adjusted EBITDA. Since there are no fixed rules on what to include or exclude, you need to be able to justify your calculations when asked by investors. 

Limitations of EBITA

While EBITA can be a useful metric, it’s not without flaws. It focuses on specific aspects of profitability and leaves out important factors, which means it doesn’t always tell the full financial story. Here are some limitations of EBITA:

• Excludes capital costs. EBITA doesn’t account for the ongoing costs of using intangible assets like patents or software. For businesses with significant amortisation costs, this can lead to an overly optimistic view of their earnings. 

• Ignores the impact of debt. By excluding interest payments, EBITA overlooks the financial strain of debt. For businesses with high borrowing, this can make their financial health appear better than it really is.

• Excludes the impact of taxes. EBITA overlooks tax implications, which can have a major impact on a company’s actual profits. By excluding taxes, EBITA may give a skewed view of profitability, particularly for businesses in regions like Africa or the European Union, which have high corporate tax rates.

• Misses cash flow details. Since EBITA doesn’t factor in changes to working capital or cash flow, it can’t show how much actual cash the business has on hand to cover expenses or reinvest. This limits its ability to fully assess financial liquidity.

• Overstates profitability. A major drawback of the EBITA margin is that it can sometimes overstate a company’s profitability, especially if there are high amortisation expenses. Amortisation might not involve immediate cash, but it reflects the gradual use of intangible assets that eventually need to be replaced. Leaving these costs out can paint an optimistic picture of a company’s financial health.

It’s essential to consider other metrics and factors alongside EBITA, such as cash flow, debt levels, and net profit.

Comparisons: EBITA vs. EBIT, EBITDA, and net profit

Deciding whether to use EBITA, EBIT, EBITDA, and net profit is like choosing a lens before taking your business’s financial picture. Each metric zooms in on different details, helping you make smarter decisions and tell the right story to investors. 

EBITA vs EBIT

EBIT stands for “earnings before interest and taxes.” As the name suggests, it looks at your company’s operating performance without considering interest and taxes. It is closely related to EBITA, but it goes a step further by also excluding amortisation expenses, which are non-cash costs tied to intangible assets like patents or licences.  

Let’s say your company has the following financial details:

• Revenue: S$300,000

• Operating expenses (excluding interest and taxes): S$200,000

Using the formula: EBIT = Revenue - Operating Expenses

EBIT = S$300,000 - S$200,000 EBIT = S$100,000

In the case of EBITA, you’ve also recorded S$10,000 in amortisation expenses for patenting a technology. By adding back the S$10,000 amortisation, your EBITA becomes S$110,000.

EBITA vs EBITDA

EBITDA stands for “earnings before interest, taxes, depreciation, and amortisation”. The difference between EBITA and EBITDA lies in how they handle depreciation. 

EBITA excludes only amortisation expenses, which is tied to intangible assets like patents or licences. However, EBITDA excludes both amortisation and depreciation, which accounts for the wear and tear of physical assets like heavy machinery or buildings. 

By excluding depreciation costs, EBITDA becomes useful for evaluating asset-heavy industries like construction and manufacturing, where significant investments in physical assets can distort net income. In contrast, EBITA is a better metric for asset-light businesses like software companies, as it excludes amortisation but still reflects operating performance. However, since EBITDA does not account for capital expenditures (CapEx), it can sometimes overstate financial health, especially for businesses that require continuous reinvestment in assets.

Let’s say your company has the following:

• Earnings Before Interest and Taxes (EBIT): S$120,000

• Amortisation costs: S$10,000

• Depreciation costs: S$15,000

To calculate EBITA, you add back only the amortisation: EBITA = S$120,000 + S$10,000 EBITA = S$130,000

To calculate EBITDA, you add back both amortisation and depreciation: EBITDA = S$120,000 + S$10,000 + S$15,000 EBITDA = S$145,000

EBITA vs net profit

EBITA and net profit are both measures of a company’s financial performance, but they focus on different aspects. 

EBITA shows your operational profitability by excluding non-operational factors like taxes, interest, and amortisation. Net profit, on the other hand, is your bottom line. It accounts for all expenses, including interest, taxes, and non-cash expenses like amortisation. It provides a complete view of what’s left after all expenses are paid. Let's say your business has the following numbers:

• Revenue: S$300,000

• Operating Expenses (excluding interest and taxes): S$200,000

• Amortization Costs: S$10,000

• Interest Expense: S$8,000

• Taxes: S$12,000

To calculate EBITA, subtract only your operating expenses from revenue: EBITA =  S$300,000 - S$200,000 EBITA = S$100,000 

For net profit, subtract all expenses (interest, taxes, and amortisation) from the EBITA: Net profit = S$100,000 - S$8,000 - S$12,000 - S$10,000 Net profit = S$70,000 

Optimise cash flow and expense management for your business with Airwallex

Maintaining a healthy EBITA starts with efficient daily operations and smart expense management.  But how do you balance that with reaching ambitious growth targets? 

That’s where Airwallex can steer your business towards sustainable growth. We help over 150,000 businesses around the world simplify their financial operations and global payments. Our Spend Management solution streamlines EBITA, your finances, enhances the accuracy of your financial metrics and provides a clear and reliable snapshot of your business’s profitability and efficiency.

• Automated bill payments and simplified accounting. Automate manual bill payment and accounting tasks with Airwallex Bill Pay, ensuring precise financial oversight that is crucial for accurately calculating EBITA. By integrating Airwallex with Xero and other leading accounting software, you can achieve instant reconciliation, making it easier to track and manage your expenses.

• Expense Management. Keep your global expenses in check with Airwallex’s end-to-end Expense Management system. Reconcile your corporate card expenses and reimbursements in one place, gain real-time visibility and control over employee spending, globally.

• Corporate Cards with cashback. Issue free Corporate Cards to your employees, enjoy 1% unlimited cashback on all local and international spend while avoiding international transfer fees (terms and conditions apply). This not only reduces your expenses but also provides a small return on every transaction, further boosting your bottom line.

The bottom line on EBITA

Now that you have a clear understanding of EBITA — what it is, how to calculate it, and its limitations — you can leverage this metric to strengthen your financial analysis and storytelling. With Airwallex’s end-to-end platform and accounting integrations, you can keep your EBITA in check without compromising your company’s growth.

Ready to scale smarter and hit your 2025 targets? Create a free Airwallex Business Account today.

Frequently asked questions

1. Is net income the same as net profit?

Yes, net income is the same as net profit. They both refer to the amount of money a business has left after deducting all expenses, including operating costs, interest, taxes, and any other costs. This figure is often called the “bottom line” because it’s typically the final number on an income statement. 

2. Why is EBITA preferred over EBITDA in certain industries?

EBITA is often preferred by industries like technology because it excludes amortisation, which can be significant due to investments in intangible assets like intellectual property. EBITA provides a clearer view of operational performance without penalising companies for expenses tied to innovation. On the other hand, industries with heavy physical assets, like manufacturing or real estate, may favour EBITDA as it also excludes asset depreciation.  

3. What are some common mistakes when applying EBITA to business?  

One common mistake when applying EBITA is treating it as a complete measure of profitability, ignoring key costs like taxes, interest, or asset replacements. Another error is failing to adjust for one-time or non-recurring expenses, which can skew results and give an inaccurate picture of operational performance. Companies can manipulate EBITA by adjusting non-recurring items or reclassifying expenses, which can distort the true picture of operational profitability. Also, comparing EBITA across companies without accounting for differences in cost structures or capital intensity can lead to misleading conclusions

4. How can companies improve their EBITA over time?

Companies can improve their EBITA by focusing on increasing revenue through better sales strategies, product diversification, or expanding to new markets. At the same time, controlling operating costs by streamlining processes or negotiating supplier contracts can boost profitability. Regularly reviewing non-recurring expenses and reducing unnecessary spending also helps maintain a healthier EBITA over time.

5. Are there any industry-specific benchmarks for EBITA? 

Yes, there are industry-specific benchmarks for EBITA. They vary widely depending on factors like profit margins, cost structures, and capital intensity. For example, tech startups often have higher EBITA benchmarks due to low physical asset costs, while manufacturing or real estate businesses may have lower benchmarks because of significant depreciation or capital requirements. Comparing EBITA against industry averages helps assess a company’s performance relative to its peers.

Sources

1) https://www.assb.gov.sg/files/Docs/Default%20Source/Sb%20Frs/Effective%20As%20At%201%20January%202023/SB-FRS_38_(2023).pdf

2) https://www.investopedia.com/ask/answers/032715/why-ebitda-margin-considered-be-good-indicator-companys-financial-health.asp

3) https://www.investopedia.com/terms/a/adjusted-ebitda.asp

This publication does not constitute legal, tax, or professional advice from Airwallex nor substitute seeking such advice, and makes no express or implied representations / warranties / guarantees regarding content accuracy, completeness, or currency. If you would like to request an update, feel free to contact us at [[email protected]]. Airwallex (Singapore) Pte. Ltd. (201626561Z) is licensed as a Major Payment Institution and regulated by the Monetary Authority of Singapore.