What are steps involved in calculating EBITDA and EBITDA coverage ratio or How EBITDA and EBITDA ratio is calculated?

Solution

The solution is explained below −

      EBITDA = Np+In+Ta+D+A
   EBITDA = 175000+20000+35000+8000
      EBITDA= 238000/-

Here, Np=Net Profit, In=Interest, Ta=Taxes, D = Depreciation, A= Amortization

      EBITDA= OI*+ D+ A
   EBITDA = (525000-200000-95000) + 8000
      EBITDA = 238000/-

Here, OI* = Operating Income, D = Depreciation, A= Amortization

(*Operating income (OI) = total revenue – cost of goods sold – operating expenses)

      EBITDA Coverage Ratio = (EBITDA+LP)/ (IP+PP+LP)
   EBITDA Coverage Ratio = (238000+15000)/ (5000+7500+15000)
      EBITDA Coverage Ratio = (253000)/ (27500)
         EBITDA Coverage Ratio = 9.2

Here, LP = Lease payments, IP= Interest payment, PP = Principal payments.