EBITDA vs Net Burn

EBITDA and Net Burn measure different aspects of a company’s financial health. EBITDA focuses on profitability by evaluating earnings from core operations before interest, taxes, depreciation, and amortization—offering a clear picture of operational performance without the noise of financing and accounting decisions. In contrast, Net Burn tracks how much cash a company is spending over time, showing whether the company is generating or losing cash. While EBITDA is based on accrual accounting and includes non-cash items, Net Burn is purely cash-based and reflects actual inflows and outflows, making it especially useful for understanding short-term liquidity and runway.

Use EBITDA when assessing how efficiently a company runs its core business, especially when comparing performance across companies or preparing for valuation discussions. It’s a go-to metric for established businesses or those approaching profitability. Net Burn, on the other hand, is critical for startups or any company not yet cash-flow positive—it helps founders and investors gauge how long the business can operate before needing more funding. In essence, EBITDA is about profitability potential, while Net Burn is about survival.

Earnings Before Interest, Taxes, Depreciation, and Amortization

Net Burn

What is it?

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is one of a few profit metrics. At its simplest, EBITDA focuses only on operational profitability, ignoring non-cash expenses by adding them back to Net Income.

Net Burn, often referred to as Burn Rate, is the amount a company is losing per month as they burn through their cash reserves. It occurs when a company’s operating costs are higher than their revenue. A company that is profitable and generating cash has a "negative Net Burn".

Who is it for?

Accountant

Chief Financial Officer

Financial Analyst

Bookkeeper

Chief Financial Officer

Financial Analyst

Auditor

Controller

Formula

ƒ Sum(Net Profit + Interest + Taxes + Depreciation + Amortization)

ƒ Revenue - COGS - OpEx + Interest + Taxes + Depreciation + Amortization

ƒ (Operating Expenses - Gross Margin)

Example

EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization If a company has: $50 million in Revenue $10 million in Costs of Goods Sold (COGS) $15 million in Operating Expenses $5 million Depreciation and Amortization Expense $2 million in Interest Expense $3 million in Taxes Net Income = 50 - 10 - 15 - 5 - 2 - 3 = $15 million EBITDA = $15 + 2 + 3 + 5= $25M

Using the first method, if a company is spending $250,000 per month to keep the doors open and generating $100,000 in revenue, Net Burn would be: Net Burn = $250,000 - $100,000 = $150,000