Hi can anyone help, according to resources online the formula is as below:
Net income + interest expense + taxes + D&A = EBITDA
Question: shouldn't interest income be added (or deducted) as well given that it's a add back of items previously deducted?
Thanks in advance!
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Interest income is already a positive part of net income so adding it back would double it and subtracting it wouldn’t make sense given that you only add back items that were previously subtracted and that you want to neutralize.
Also, imo, it’s easier to think about it like
Rev
-cogs
Gross profit
-opex
EBIT (operating income)
+D&A
EBITDA
Don’t think this is correct.
Unless you are dealing with an industry where interest is part of the operating income, you would adjust for it if you want to go back up to EBITDA from net income.
OP, “interest expense” in your formula is just a short-hand for net interest expense / income. If I have $20m in EBITDA, $2m in finance expenses and $1m in finance income, I would reduce EBITDA by $1m on a net basis to get to PBT (and then apply a tax rate to get to net income of course).
Net income already includes both interest expense and interest income. So when people say “add back interest,” they’re usually referring to net interest.
In reality:
A cleaner way to think about it is:
EBITDA = Net income + net interest + taxes + D&A
Like previously have mentioned, add back net interest expense.
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