How to Calculate EBITDA: An Easy Guide for Business Owners

According to research by Jessie Hagen at U.S. Bank, 82% of business failures are caused by poor cash flow management.

This isn't just a scary statistic; it's a wake-up call. 

Learning how to calculate EBITDA gives you a clear vision of your business’s financial health, helping you make smarter decisions, whether it’s investing in tools like a digital menu, hiring and developing your staff, or improving other areas of your operations.

This article helps you ensure that your business is on solid footing by building a foundation for growth with the proper calculations rather than just trying to survive. 

What is EBITDA?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, is a measure of how much money a business earns from its operations over a specific period, before subtracting these expenses:

• Interest: Costs from loans or borrowed money.
• Taxes: Payments are made to the government to run your business.
• Depreciation: The gradual reduction in value of physical assets (like ovens, tables, buildings) over time.
• Amortization: The gradual decrease in value of intangible assets (like franchise rights, patents, trademarks) over time.

It answers the question: “How much cash is my restaurant generating just by running its day-to-day operations?”

Why is EBITDA important for your restaurant?

1. Serves as a tool for Investors 

If restaurant owners focus on restaurant profit margin to understand how much of their revenue turns into net profit, investors use EBITDA to evaluate a restaurant that is not yet profitable on a net income basis. 

For instance, a high-growth startup restaurant might have negative net income due to heavy investment and high interest expenses. Still, a positive EBITDA could show that its operations are actually profitable, making it important to understand how to calculate EBITDA when assessing business performance.

2. Assesses operational efficiency

Investopedia, a comprehensive, educational, finance-focused platform, explains that EBITDA matters because it shows investors how well a business runs its day-to-day operations and how much of its profit comes from its core operations.

3. Key for M&A (merger and acquisition) due diligence

Suppose you are buying a restaurant, according to Run Eleven, an automated, scalable accounting solution, when a buyer wants to buy your restaurant. In that case, they often use EBITDA to see how good it is at making money from its operations. 

This helps the buyer determine how profitable your restaurant will be after the purchase. 

4. Helps assess debt capacity

Lenders and creditors often look at EBITDA to see if your restaurant can handle its debt payments. A strong EBITDA usually means the business can comfortably pay interest and principal.

5.  Key metric for valuation comparisons

The Enterprise Value/EBITDA ratio is a simple way for investors to compare businesses and find a good deal. It's like asking: “How many years of the business’s day-to-day earnings would it take to cover its full purchase price?”

• A high ratio means the business is expensive for what it currently earns.
• A low ratio suggests the business is cheap for what it earns, which could be a great deal. 

How to calculate EBITDA

Step 1: Gather the necessary data

To calculate EBITDA, it's important to have a complete data record from your restaurant’s income statement. 

Example: Restaurant A – Income Statement (Year Ended 2025)

Revenue  (Food & Beverage Sales)	$85,000
Cost of Goods Sold (COGS)	$35,000
Gross Profit	$50,000
OPERATING EXPENSES
Salaries and Wages	$12,000
Rent	$4,000
Utilities	$1,200
Marketing and promotions	$1,500
Depreciation (Equipment)	$2,000
Amortization (Franchise/Software)	$3,000
Total operating expenses	$23,700
Operating Income (EBIT)	$26,300
OTHER EXPENSES
Interest Expense	$800
Earnings Before Tax (EBT)	$25,500
Income Taxes (estimated 20%)	$5,100
Net Income	$20,400

Step 2: Calculate EBIT (Earnings Before Interest and Taxes)

EBIT shows a business’s operating income before deducting interest and tax expenses.

It’s vital to calculate EBIT first, because EBITDA calculation is based on operating income. In most cases, EBIT and Operating Income mean the same thing, since both already include depreciation and amortization as part of operating expenses.

EBIT Formula:

EBIT = Revenue − COGS − Operating Expenses

From Restaurant A’s data:

Revenue (Sales)	$85,000
Cost of Goods Sold (COGS)	$35,000
Total Operating Expenses (including depreciation and amortization)	$23,700

EBIT= 85,000 − 35,000 − 23,700
EBIT = 26,300

Step 3: Calculate EBITDA

Since Operating Income (EBIT) already subtracts Depreciation and Amortization (D&A) as part of operating expenses, you can find EBITDA simply by adding D&A back:

EBITDA formula: 

Top-Down approach formula

EBITDA = Operating income (EBIT) + Depreciation + Amortization

From business A’s data:

Operating income (EBIT)	$26,300
Depreciation	$2,000
Amortization	$3,000

EBITDA = 26,300 + 2,000 + 3,000 
EBITDA = $31,300

Bottom-Up approach formula

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

The net income is the bottom line of the income statement, so starting here is convenient if you already have financial statements.

From business A’s data:

Net Income	$20,400
Interest	$800
Taxes	$5,100
Depreciation	$2,000
Amortization	$3,000

EBITDA = 20,400+ 00+ 5,100+ 2,000 + 3,000 
EBITDA = $31,300

Step 4: Verify your result

Both approaches should give you the same EBITDA. If they don’t, double-check your numbers for errors in operating expenses, depreciation, amortization, interest, or taxes.

How to interpret EBITDA? 

You already know how to calculate EBITDA, but here’s the catch: a standalone EBITDA figure doesn’t tell the whole situation. You need to interpret it in context, and here’s how: 

1. Consider different factors when you compare

According to investing.com, a global financial information hub, interpreting EBITDA measures a business’s operating health, but it only makes sense when compared to similar businesses in the same industry and of similar size.

2. Master the formula to calculate EBITDA margin

One of the easiest ways to interpret EBITDA is by calculating the EBITDA margin:

EBITDA Margin = (EBITDA ÷ Revenue) × 100

Example Calculation

Data: 
Revenue (sales): $85,000
EBITDA: $31,300

Result:
EBITDA Margin = (31,300​ ÷ $85,000​) ×100 = 36.8%

3. Interpret the EBITDA margin

In general guidance, Simon Thomas, Managing Director of Ridgefield Consulting, suggests that a healthy EBITDA margin is typically between 15% and 25%.

For industry-specific benchmarks, MetricHQ, an open community business metrics, also categorizes a healthy EBITDA margin by business type:

Industry	Typical EBITDA Margin	Top-performing business
Software/SaaS	15–25%	30–40%
Manufacturing	10–15%	15–20%
Retail	5–10%	15–20%
Telecom	30–45%
Utilities	35–50%
Healthcare Services	15–25%
Restaurants	10–20%
Professional Services	15–25%

4. Compare to similar restaurants 

Determine if the business is performing above, below, or in line with competitors:

• Above benchmark: strong operational performance
• In line with benchmark:  typical performance
• Below benchmark: room for improvement

5. Use insights for decision-making

• Evaluate expansion, investment, or financing opportunities
• Optimize menu pricing and promotions
• Identify areas for operational improvement.

How to increase profit without cutting too much revenue

Tax and fixed restaurant cost are set in stone each month, so don’t sweat what you can’t change. If you want to boost profits, focus on where you can make changes. For example, your COGs and day-to-day operating expenses.

1. Use a restaurant ordering software 

One of the best ways to reduce operating costs is by using smart restaurant ordering software. It’s far more than just an online menu; it’s a complete system designed to streamline operations and elevate the guest experience.

Look for tools that come with the following: 

• Marketing Tools: Fully customize your restaurant website for direct ordering with white-label branding, making it entirely your own. Promote specials, gather real-time feedback, and capture valuable customer data.

• QR Code Menu: Eliminate the hassle of reprinting menus or running back and forth to take orders. Let your team focus on personalized hospitality and creating a seamless experiential dining for your customers 

• Multi-Location Management: Manage menus, pricing, and orders for every branch from one centralized platform; no more juggling multiple systems.

• Accounting Features: Cut down on manual calculations, reduce admin hours, and save on bookkeeping costs by automating simple reports.

• Assistance Call Button: Perfect for buffet or unlimited-service setups, this feature allows staff to assist only when needed, minimizing labor costs while improving service efficiency.

2. Manage labor and staffing

Using employee scheduling software helps you get this right by looking at past sales and foot traffic to make sure you have enough people during the busiest times (like Friday night) but not so many that they're just standing around. 

3. Manage your inventory smarter

A food waste is a waste of money. So, use a system to know what you have so you only order what you need, and nothing goes bad.

4. Reduce energy costs

 Look for ways to save on utilities. Simple things like using energy-efficient equipment or just remembering to turn off the lights can make a big difference over time. 

5. Negotiate with suppliers

Don’t just accept supplier prices at face value. Build relationships and negotiate. Order in bulk when it makes sense, ask about deals, and stay loyal to vendors who give you good rates. A friendly, consistent buyer often gets first dibs on discounts and perks.

Stay ahead of the curve. Know your EBITDA

When you get right down to it, managing a business is about making smart choices. And you can't make wise choices if you don't truly understand your numbers. That's what this whole guide has been about.

Understanding how to calculate EBITDA isn't just a financial exercise; it's about giving yourself a powerful tool to see the real story behind your business.

You now know how to look at your business with clear eyes, seeing the full picture from managing costs to investing in new tools like restaurant ordering software.

This knowledge is your foundation. It’s the difference between hoping for the best and knowing you're on the right track to a stronger, more profitable future.

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