EBITDA vs Revenue

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and Revenue represent fundamentally different financial measurements within a business. Revenue is the total income generated from selling goods or services before any expenses are deducted, essentially measuring the top-line sales performance. EBITDA, however, measures operational profitability by starting with revenue and then subtracting operating expenses (excluding interest, taxes, depreciation, and amortization), providing insight into a company's core operational efficiency and earning potential independent of capital structure, tax environments, and non-cash expenses.

A growing technology company would focus on Revenue when demonstrating market adoption, sales momentum, or market share gains to investors during early growth stages. For instance, a SaaS startup might emphasize its 100% year-over-year revenue growth to show product-market fit and scaling potential. By contrast, the same company would highlight EBITDA when proving business model viability and operational efficiency as it matures, particularly when approaching profitability or preparing for acquisition. If two similarly-sized competitors both generate $10 million in revenue, but one has an EBITDA of $2 million while the other has $500,000, investors would likely view the first company as having a more efficient operating model despite identical revenue figures.

Earnings Before Interest, Taxes, Depreciation, and Amortization

Revenue

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.

Revenue is the total income generated from a company's primary business operations before deducting any costs or expenses. Often called the "top line" because it appears at the top of the income statement, revenue represents the gross amount earned from core business activities such as product sales, service fees, subscriptions, or licensing agreements.

Who is it for?

Accountant

Chief Financial Officer

Financial Analyst

Bookkeeper

Chief Financial Officer

Chief Revenue Officer

Formula

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

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

ƒ Sum(Revenue)

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

Revenue calculation depends on your business model and revenue recognition method. For a subscription business, if a customer signs an annual contract for $12,000 with monthly payments, you would recognize $1,000 in revenue each month over the 12-month period, totalling $12,000 for the year. For one-time sales, revenue equals the sale price multiplied by units sold. It's crucial to distinguish between cash received and revenue recognized - they may not occur in the same period depending on your accounting method.