What is EBITDA? Margin Formula, Adjusted EBITDA, and More

In this guide, we’ll simplify EBITDA, including how to calculate it, what EBITDA margin tells you, how it's different from adjusted EBITDA, and what a “good” EBITDA actually looks like.

Whether you're a founder, finance analyst, or operator, this is your cheat sheet to mastering EBITDA.

What is EBITDA?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.

Put simply, it’s a way to measure a company’s operating performance — without getting bogged down by capital structure, tax strategy, or non-cash expenses.

The goal?

To see how profitable a business is from its core operations.

Why Do Investors Love EBITDA?

• Cleaner view of operations: Strips out financing and accounting differences.

• Easy for comparison: Helps compare startups with different tax laws, interest expenses, or capital investments.

• Cash-focused: Since depreciation and amortization are non-cash, EBITDA gets closer to a business's real cash flow.

How to Calculate EBITDA

The basic EBITDA formula is:

EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization

Or starting from operating income (EBIT):

EBITDA = EBIT + Depreciation + Amortization

Example:

Let’s say a SaaS startup has:

• Net Income: $200,000

• Interest: $20,000

• Taxes: $30,000

• Depreciation: $50,000

• Amortization: $25,000

EBITDA = 200K + 20K + 30K + 50K + 25K = $325,000

What is EBITDA Margin?

EBITDA Margin tells you how much of your revenue turns into EBITDA. It’s expressed as a percentage.

EBITDA Margin Formula:

EBITDA Margin = (EBITDA / Total Revenue) × 100

Using the previous example:

• EBITDA: $325,000

• Revenue: $1,000,000

EBITDA Margin = (325,000 / 1,000,000) × 100 = 32.5%

Why it matters:

A higher EBITDA margin means your business has strong operating leverage or efficiency.

What is a Good EBITDA?

There’s no universal “good” EBITDA — it depends on your industry and growth stage.

• SaaS & tech startups often have low EBITDA or even negative, early on — because they’re reinvesting for growth.

• Mature businesses or bootstrapped companies might target 20–40% EBITDA margins.

• VCs look for improving EBITDA trends, even if it’s negative today.

Adjusted EBITDA: What’s Different?

Adjusted EBITDA makes additional tweaks — adding back “non-recurring” or “non-operational” costs.

Common adjustments:

• One-time legal fees

• Founder bonuses

• Restructuring costs

• Stock-based compensation

Why it matters:

It helps present the company in a more normalized state. Especially useful during fundraising or M&A due diligence.

What is EBITDAR?

EBITDAR stands for:

Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent

It's used when rent expenses distort comparability — common in hospitality, airlines, or retail.

Example: A co-working startup might use EBITDAR to show performance across different lease types.

Quick Summary Table

Conclusion

EBITDA isn’t perfect, but it’s one of the cleanest snapshots of how a startup is performing operationally.

If you're fundraising, pitching, or being evaluated — knowing your EBITDA, margin, and trends can make or break investor confidence. Don’t just know your EBITDA — know your adjusted, historical, and projected EBITDA too.

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