What is EBITDA? How to calculate and use this key metric

Case study: calculating EBITDA for TechFab Innovations Ltd

TechFab Innovations Ltd is a company that designs and manufactures innovative tech accessories. 

To calculate their EBITDA for the fiscal year, they follow these steps:

1. Gather financial data:

• Earnings: TechFab’s total revenue for the year was £2,500,000.
• Interest: They paid £50,000 in interest on loans they had taken for expansion.
• Taxes: The company incurred £300,000 in corporation taxes.
• Depreciation: The depreciation expense for their manufacturing equipment was £100,000.
• Amortisation: They had no significant amortisation expenses.

2. Apply the EBITDA Formula:

(E) £2,500,000 – (I) £50,000 – (T) £300,000 – (D) £100,000 – (A) £0 = £2,050,000

3. Interpret the result:

TechFab Innovations Ltd’s EBITDA for the fiscal year is £2,050,000.

In this example, TechFab’s EBITDA calculation focuses on its core operational earnings by excluding interest, taxes, depreciation, and amortisation. 

This metric provides a clear picture of the company’s profitability from its primary business activities.