EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortisation. It measures operating profitability by excluding non-operating expenses and non-cash charges.
EBITDA is one of the most widely used profitability metrics, particularly for business valuation and comparison. By stripping out interest (financing decisions), taxes (jurisdiction dependent), depreciation and amortisation (non-cash charges), EBITDA provides a cleaner view of operating performance. It is calculated as Net Profit + Interest + Tax + Depreciation + Amortisation, or equivalently as Operating Revenue minus Operating Expenses (excluding depreciation and amortisation). EBITDA is popular in business valuations because it allows comparison between businesses with different capital structures, tax positions and depreciation policies. Business valuations often use an EBITDA multiple - for example, a business valued at 5x EBITDA with $200,000 EBITDA would be valued at $1 million. However, EBITDA has limitations - it ignores capital expenditure requirements, changes in working capital and the actual tax burden. SortBooks provides real-time EBITDA calculations by accurately categorising all revenue and expense transactions and identifying interest, tax and depreciation charges.
SortBooks helps with the bookkeeping behind ebitda by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing ebitda by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
Net profit (also called net income or the bottom line) is your total revenue minus all expenses, including COGS, operating expenses, interest and tax. It is the final profit figure.
Gross profit is your revenue minus the cost of goods sold (COGS). It shows how much money remains from sales after covering direct production or purchasing costs.
Depreciation is the accounting method of allocating the cost of a tangible asset over its useful life. It reduces taxable income each year and reflects the asset's declining value.
Amortisation is the process of spreading the cost of an intangible asset over its useful life. It is similar to depreciation but applies to non-physical assets like patents, trademarks and software.
Business valuation is the process of determining the economic value of a business. Common methods include EBITDA multiples, discounted cash flow and asset-based approaches.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.