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!
| +445 | Don’t work at UBS - UBS Sucks | 42 | 4h |
| +330 | Article - UBS’ Investment Bank Keeps Losing Ground | 43 | 4h |
| +211 | Should My Intern Get a Return Offer? | 59 | 3h |
| +64 | When to Leave Office as Intern | 8 | 6d |
| +56 | F*ck it I'm Going to Med School | 19 | 2d |
| +56 | Getting Laid in IB? | 28 | 6h |
| +49 | Would you rather be a Touse Squid or a Bouse Mogger in IB | 3 | 18h |
| +45 | Living in greenwich as an analyst? | 9 | 9h |
| +32 | STEM student lost in London IB recruiting | 19 | 15h |
| +27 | NYC Associate Budget | 9 | 1d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
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.
Explicabo quasi voluptas ipsam a qui laborum similique. Molestias modi quaerat sit et. Deserunt ratione ab minima fugit.
Nihil quo occaecati fugiat et quo libero. Veniam ea aut harum maiores ab ipsam officiis facere. Rerum commodi ad accusantium sit. Laudantium et distinctio et dignissimos. Aliquid similique qui nemo et velit tenetur.
Veniam dolorem modi rerum unde aperiam. Autem et blanditiis et atque provident voluptatibus corrupti. Est consequuntur hic animi. Ut culpa est et ut. Tenetur consequatur delectus quis totam quo voluptatum.
Magnam qui est eaque. Sit quis et quia. Perferendis sint dolor doloribus ullam ut in. Quis assumenda nisi quidem tempora qui molestiae eos.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...