EBITDA

What is EBITDA?

EBITDA measures how much money your core business operations generate before accounting for interest payments, tax obligations, and non-cash charges like depreciation and amortization.

For most software startups, depreciation and amortization are minimal, so EBITDA is close to operating income. The metric is useful for comparing companies because it removes differences caused by financing structure (debt vs equity) and accounting choices.

Negative EBITDA is common for growth-stage startups — it essentially represents your operating loss before non-cash charges. The trajectory of EBITDA (improving or worsening) is more important than the absolute number.

Why it matters

EBITDA is a common valuation metric, especially for later-stage companies. Enterprise value / EBITDA multiples are used to price acquisitions and assess company value.

For earlier-stage startups, EBITDA is less relevant than metrics like burn rate and MRR, but it becomes important as you approach profitability or consider an exit. Understanding it prepares you for more sophisticated financial conversations with investors and advisors.

Formula

EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
Or: EBITDA = Revenue - Operating Expenses (excluding D&A, interest, and taxes)

Example

How RunwayCal helps

Common mistakes

• 1Treating EBITDA as a cash flow metric (it excludes working capital changes and capex)
• 2Ignoring that EBITDA strips out real costs like interest on debt that must be paid
• 3Using EBITDA for early-stage startups where MRR and burn rate are more relevant metrics