What Is EBITDA? Earnings Before Interest, Taxes, Depreciation and Amortization

EBITDA is earnings before interest, taxes, depreciation and amortization: net income with those four items added back, a measure that US GAAP does not define.

EBITDA turns up in earnings releases, loan agreements and valuation multiples, and it is one of the most argued-over numbers in company reporting. This page covers how it is built from the income statement, a worked example from Microsoft's 10-K for the year to June 2026 that shows why two common recipes give different answers, what the SEC requires when a company publishes it, what adjusted EBITDA adds, what the measure leaves out, and what Kresmion does and does not show. It is descriptive throughout.

What the letters mean

The first letter is the starting point; each of the other four is a cost added back to it.

• E, earnings: net income, the bottom line of the income statement.
• I, interest: the cost of borrowing. Adding it back removes most of the effect of how the company is financed.
• T, taxes: income tax expense. Adding it back removes the effect of where and how the company is taxed.
• D, depreciation: the cost of physical assets such as buildings and servers, spread over their useful lives.
• A, amortization: the same spreading for intangible assets such as acquired technology and customer relationships.

Adding back only interest and taxes gives EBIT, earnings before interest and taxes. Adding back depreciation and amortization as well gives EBITDA. The appeal is that depreciation and amortization are non-cash charges for assets whose cash cost was paid when they were bought, often in earlier years, so EBITDA sits closer to the operating cash a business generates in the year, and it can be compared across companies with different debt levels, tax positions and asset ages.

The SEC's definition and rules

Because US GAAP does not define EBITDA, a company that publishes it presents a non-GAAP financial measure. Regulation G requires the most directly comparable GAAP measure beside it with a reconciliation, and Item 10(e) of Regulation S-K requires, in SEC filings, including earnings releases furnished on Form 8-K, that the GAAP measure be presented with equal or greater prominence.

The SEC staff has also said what the term itself means, in its compliance and disclosure interpretations on non-GAAP measures:

• Question 103.01: "earnings" in EBIT and EBITDA means net income as presented in the statement of operations. A measure calculated differently should not be called EBIT or EBITDA, and its title should be distinguished, for example as "Adjusted EBITDA".
• Question 103.02: EBITDA used as a performance measure should be reconciled to net income. Operating income is not the most directly comparable GAAP measure, because EBITDA adjusts for items that operating income does not include. EBITDA must not be presented on a per-share basis.

A worked example: Microsoft, fiscal 2026

Microsoft does not report EBITDA, which makes it a clean case for building the number by hand from its 10-K for the year ended 30 June 2026, filed on 29 July 2026. In billions of dollars:

The unrounded inputs are net income of $133,749 million, taxes of $32,185 million and interest expense of $3,051 million, which give EBIT of $168,985 million; the 10-K states depreciation and amortization only in billions.

A common shortcut starts from operating income instead: $155,237 million plus the same $39.0 billion of depreciation and amortization gives about $194.2 billion. The two recipes differ by $13.7 billion, and the difference is exactly Microsoft's other income (expense) line, $10,697 million, plus the interest expense of $3,051 million added back in the first recipe. Note 3 says that other income line included $6.5 billion of net gains from Microsoft's investments in OpenAI. So EBITDA built the way the SEC staff describes includes those investment gains, while the operating income shortcut leaves them out. The two figures answer different questions, which is why the staff asks for the starting point to be net income and for anything else to carry a different name.

Two more choices change the answer. Some calculations add back only interest expense, as above; others add back net interest, interest expense less interest income. Microsoft's interest and dividends income of $3,301 million exceeded its $3,051 million of interest expense in fiscal 2026, so on that variant about $250 million comes off the figure instead of $3,051 million being added, $3.3 billion lower in all. And the depreciation and amortization figure can come from the notes, as here, or from the cash flow statement, where Microsoft prints a combined line, "depreciation, amortization, and other", of $38,534 million that mixes in other non-cash items.

Adjusted EBITDA

Many companies publish an adjusted EBITDA that removes further items management treats as outside the ordinary business: stock-based compensation, restructuring charges, acquisition costs, impairments, litigation settlements or gains and losses on investments. Each company picks its own list, so two adjusted EBITDA figures are rarely built the same way, and the reconciliation to net income that Regulation G requires is where a reader finds the list.

The size of a single adjustment can be large. Microsoft's stock-based compensation expense was $12,405 million in fiscal 2026; a company that excludes that item from its measure reports a figure that much higher than one that does not.

Where EBITDA is used

• Debt ratios. Debt divided by EBITDA is a common way to compare borrowing with earning power, and loan agreements often set covenant limits on a ratio of this kind, with EBITDA defined in the contract. Microsoft's debt on the face of its balance sheet, $40,294 million at 30 June 2026, is about 0.2 times either EBITDA figure above.
• Valuation multiples. Enterprise value, roughly market capitalization plus net debt, divided by EBITDA is a common multiple for comparing companies with different capital structures, in the way the P/E ratio compares price with earnings per share.
• Comparisons across borders and owners. Removing interest and tax makes companies with different tax regimes and financing easier to line up side by side.

What EBITDA leaves out

• Capital spending. EBITDA adds back depreciation, the cost of assets already bought, but ignores the cash spent on new ones. In fiscal 2026 Microsoft's additions to property and equipment were $115,948 million, about three times its $39.0 billion of depreciation and amortization; its operating cash less that spending was $66,987 million.
• Working capital and taxes paid. Cash tied up in receivables and inventory, and the taxes a company actually pays, are real uses of cash that EBITDA does not count.
• Interest is a real cost. For a heavily indebted company, interest can absorb much of what EBITDA shows.
• Lease accounting moves it. Under IFRS 16, lessees record nearly all leases on the balance sheet and expense them as depreciation and interest, both added back in EBITDA. Under US GAAP, an operating lease's cost is a single operating expense that stays inside EBITDA, while a finance lease is expensed as amortization and interest, both added back. Microsoft's operating lease cost was $6,968 million in fiscal 2026, an expense that stays inside its EBITDA; a company reporting the same leases under IFRS 16 would add most of that cost back, though IFRS 16 lets short-term and low-value leases stay as an expense and variable payments are expensed as incurred.
• It is not a cash flow. EBITDA is a profit measure with four items removed. Operating cash flow, from the cash flow statement, is the GAAP measure of the cash a business generated.
• It is not standardised. Beyond the SEC staff's net-income starting point, the choice of interest, depreciation source and adjustments is the preparer's, and adjusted figures drift: items labelled one-off can recur, and the list of exclusions can change from year to year.
• It says nothing about the balance sheet. Debt, cash and other obligations are on the balance sheet, not in EBITDA.

EBITDA in Kresmion

Kresmion does not show an EBITDA figure. On a company's page in Kresmion's app, open with a free account, the Financials tab's Standard view carries operating income, income tax and net income in the income statement, but no depreciation and amortization line and no interest expense line, so EBITDA cannot be calculated from the Standard view alone, and Kresmion's KRM.FIN spreadsheet function, described in the guide, has no EBITDA item. The As reported view keeps the filer's own statements as filed with the SEC, so where a company prints depreciation and amortization in its cash flow statement, as Microsoft does in its combined line, that line appears there. It is built from the SEC's Financial Statement Data Sets and from the XBRL of newly filed reports, a different route from the Standard view, so the most recent filing can reach one view before the other. Each column links to its filing on EDGAR, where the notes give the depreciation, amortization and interest figures used above.

Key takeaways

Frequently asked questions

How is EBITDA calculated?

Start from net income and add back interest expense, income tax expense, depreciation and amortization. For Microsoft in fiscal 2026 that gives about $208.0 billion. Starting from operating income and adding depreciation and amortization gives a different figure, about $194.2 billion, because it leaves out non-operating items.

Is EBITDA a GAAP measure?

No. US GAAP does not define EBITDA, so a company that publishes it presents a non-GAAP measure and must reconcile it to the most directly comparable GAAP measure, which the SEC staff says is net income when EBITDA is presented as a performance measure.

What is the difference between EBITDA and operating income?

Operating income is a GAAP line on the income statement: revenue less operating costs, including depreciation and amortization. EBITDA starts from net income and adds back interest, taxes, depreciation and amortization, so it also includes non-operating items such as investment gains, and is measured before depreciation and amortization.

What is the difference between EBITDA and adjusted EBITDA?

EBITDA adds back the four items in its name and nothing else. Adjusted EBITDA removes further items a company chooses, such as stock-based compensation or restructuring costs. The SEC staff says such a measure should not be called EBITDA.

Does a rising EBITDA mean a stock will rise?

No. EBITDA describes past performance with several costs removed. It does not forecast the share price, and it can rise while the cash a business keeps falls, for example when capital spending grows faster.

This page is information, not investment advice.

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Source: Microsoft Corporation, Form 10-K for the fiscal year ended 30 June 2026, filed 29 July 2026: Item 8 income statements and cash flows statements, Note 3 other income (expense), Note 6 property and equipment, Note 9 intangible assets, Note 13 leases, https://www.sec.gov/Archives/edgar/data/789019/000119312526323660/msft-20260630.htm ; SEC Division of Corporation Finance, Non-GAAP Financial Measures compliance and disclosure interpretations, Questions 103.01 and 103.02, https://www.sec.gov/rules-regulations/staff-guidance/corporation-finance-interpretations/non-gaap-financial-measures ; Regulation G, 17 CFR 244.100, https://www.ecfr.gov/current/title-17/section-244.100 ; Regulation S-K Item 10(e), 17 CFR 229.10, https://www.ecfr.gov/current/title-17/section-229.10 , applied to furnished earnings releases by Form 8-K Item 2.02, Instruction 2, https://www.sec.gov/files/form8-k.pdf ; IFRS Foundation, IFRS 16 Leases, https://www.ifrs.org/issued-standards/list-of-standards/ifrs-16-leases/ ; EBIT, EBITDA and ratios computed by Kresmion from the 10-K figures ; Kresmion Financials tab (Standard and As reported views) and the KRM.FIN spreadsheet function.

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