EBITDA
Earnings Before Interest, Taxes, Depreciation and Amortization: operating result before interest, taxes and depreciation. A widely used measure of operating profitability.
What does EBITDA mean?
Earnings Before Interest, Taxes, Depreciation and Amortization: operating result before interest, taxes and depreciation. A widely used measure of operating profitability.
EBITDA is a non-statutory performance measure. The exact calculation can differ per company and must therefore be defined. Investments, interest and taxes are left out, so EBITDA is not free cash flow.
How does it work?
EBITDA is not in the law and not in the formats for the profit and loss account. You derive it: operating result plus depreciation and amortisation, and in most definitions also plus impairments. In the by-nature format these items have their own lines (art. 2:377(3)(h) DCC). In the by-function format they are included in cost of sales, selling costs and general costs; you then take the amount from the fixed asset movement schedule.
The figure serves to compare companies with different financing and different depreciation policies, and appears in agreements with the bank, such as debt divided by EBITDA. Because there is no statutory definition, every preparer adjusts for one-off items differently. The tax law has its own variant: interest is not deductible to the extent that the balance exceeds 24,5% of the adjusted profit or, if that is more, € 1 million (art. 15b Corporate Income Tax Act 1969). That adjusted profit is the taxable profit plus depreciation, write-downs and the net interest balance.
Example
A transport BV, financial year 2025. Operating result € 140.000, depreciation of trucks € 210.000, amortisation of planning software € 15.000. EBITDA: 140.000 + 210.000 + 15.000 = € 365.000. The bank debt is € 1.100.000: debt divided by EBITDA is 3,0. In the same year the BV replaced three trucks for € 330.000 and paid € 55.000 in interest and € 20.000 in corporate income tax. After investments, interest and tax, 365.000 − 330.000 − 55.000 − 20.000 = € 40.000 negative remains, before any repayment.
In the annual accounts
Derived from the P&L and the notes; not a prescribed line under Title 9.
Difference from cash flow
EBITDA is often read as the money the company earns, but it is a profit concept. Four things are missing: interest paid, tax paid, investments and the change in working capital. A growing company with rising receivables and inventories can have a high EBITDA and still run short of cash. The operating cash flow from the cash flow statement does show that.
Common mistakes
- Equating EBITDA with cash flow
- Adjusting for one-off items without explanation
What to watch for
- Write out the calculation and the adjustments for every EBITDA figure, and calculate it the same way every year.
- Put the figure next to the replacement investments. In a capital-intensive business, depreciation is money that comes back as soon as the machine is worn out.
- If EBITDA appears in a bank covenant, use the definition from the credit agreement. Micro and small entities do not make a profit and loss account public; EBITDA cannot be derived from their filed documents.
Legal basis and source
no separate statutory definition
Frequently asked questions
How do you calculate EBITDA from the annual accounts?
Take the operating result and add the depreciation of tangible fixed assets and the amortisation of intangible fixed assets. If you start from the result after tax, add tax, interest expenses, depreciation and amortisation and deduct interest income.
Is a high EBITDA always favourable?
No. The figure ignores investments, interest and tax. A company with a lot of machinery or a lot of debt can have a high EBITDA and still make a loss.
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Preparing Dutch annual accounts?
Your first set of annual accounts is free, for every size class. Create an account and prepare the annual accounts of your Dutch company under Title 9 of Book 2 of the Dutch Civil Code.
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