Once a business starts scaling, SME and startup owners run into financial vocabulary from investors and credit officers — most often the question "what was your EBITDA this year?"
In this article SiamAccount unpacks what EBITDA is, why it tells you more than net profit, and how to manage the number when you are preparing to raise money.
What is EBITDA?
In short: EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortisation. It shows how profitable the business is from operations alone, stripping out accounting and financing effects.
Put in business terms, EBITDA tells you how good your business is at generating cash from selling its product or service — before that money goes out to the bank as interest, to the government as tax, or is reduced by depreciation on machinery, which is an accounting entry rather than cash actually leaving the account.
What EBITDA is made of
In short: five components — E (earnings), I (interest expense), T (income tax), D (depreciation of tangible assets) and A (amortisation of intangible assets). Adding the last four back to profit reveals the operating cash the business really produces.
Broken down the way it appears in corporate accounting:
- E (Earnings): net profit — the bottom line of the income statement
- I (Interest): interest expense, such as bank loan interest or vehicle hire-purchase interest
- T (Taxes): corporate income tax payable to the Revenue Department
- D (Depreciation): depreciation of tangible assets such as buildings, machinery and office equipment
- A (Amortisation): amortisation of intangible assets such as licences, software and patents
The EBITDA formula every owner should know
In short: there are two routes — top-down (operating profit + depreciation and amortisation) and bottom-up (net profit + interest + tax + depreciation and amortisation). The bottom-up route is the more common one when you are reading an income statement.
Here is the bottom-up calculation on a sample company, the way you would prepare it for a loan assessment:
| Income statement line | Amount (THB) | Step |
|---|---|---|
| Net profit | 2,000,000 | Starting point (E) |
| Add back: income tax | 500,000 | + (T) |
| Add back: interest expense | 300,000 | + (I) |
| Add back: depreciation and amortisation | 1,200,000 | + (D&A) |
| EBITDA | 4,000,000 | True operating result |
Why banks and investors look at EBITDA
In short: banks use EBITDA to assess debt service capacity (DSCR), because it reflects the cash actually available. Investors use it to compare operating efficiency between companies in the same sector, setting aside differences in tax position and debt structure.
Owners of construction and manufacturing businesses are often surprised that a bank will lend against a loss-making bottom line. The reason is that the bank is reading EBITDA: the depreciation deducted in the accounts was never a cash payment, so the company still has enough cash to meet its instalments.
What is EBITDA margin, and how do you read it?
In short: EBITDA margin divides EBITDA by total revenue, showing how much operating profit the business makes on every THB 100 of sales. A higher percentage means tighter control of production costs and overheads.
The formula: (EBITDA / total revenue) × 100 = EBITDA margin (%)
This is one of the executive dashboard KPIs our CFO advisory team monitors for SME clients, because it shows whether the business model leaves enough room to compete profitably.
The limits of EBITDA
In short: EBITDA ignores capital expenditure (CAPEX) and changes in working capital. If your business constantly needs new machinery, EBITDA alone can make you feel cash-rich while the cash is in fact tied up in assets.
⚠️ Do not confuse EBITDA with free cash flow
EBITDA is not free cash flow. Warren Buffett has long warned that adding depreciation back flatters the number, because machinery does wear out and replacing it takes real cash. Always read EBITDA alongside the cash flow statement.
Checklist: strengthening EBITDA before you apply
In short: separate revenue streams clearly, take personal expenses out of the company accounts, and manage cost of goods sold tightly — so the operating profit base is strong before financing costs are deducted.
If you plan to borrow within the next year or two, our tax and financial planning team suggests starting here:
- ✓Clean up the books: remove the owner's personal expenses from the company accounts so they stop suppressing net profit and EBITDA — which is what lifts DSCR over the bank's threshold.
- ✓Renegotiate costs: review suppliers to bring down cost of goods sold, and hold overheads such as advertising within budget.
- ✓Move to cloud accounting: track margin by branch in real time so leaks are closed as they appear.
Case study: restructuring EBITDA for a Chiang Mai contractor
In short: a Chiang Mai contractor had strong sales but was declined for equipment finance because interest and repair costs were mixed together in the accounts. We rebuilt the chart of accounts, lifting EBITDA by 40% and securing the facility.
Success Story
Turning messy accounts into financials a bank wants to lend against
A contractor working the San Sai and Mae Rim area had projects year round, yet kept being refused an overdraft facility. Reviewing the accounts, we found some machinery purchases had been expensed immediately instead of capitalised and depreciated over their useful life — which severely compressed both profit and EBITDA.
Our team rebuilt the chart of accounts, separating capital expenditure from operating expenditure. With depreciation correctly recognised and added back, the company's EBITDA margin returned to the industry norm and the credit application went through.
Summary: let a professional CFO manage your EBITDA
In short: EBITDA is the compass for how strong your business really is. Managing it well takes tax planning, cost control and a solid grasp of accounting standards — so the financial statements become a tool for growth rather than a formality.
If you run a business in Chiang Mai, Lamphun or Lampang and your financial statements do not reflect the profit you know you are earning, we should talk.
Strengthen your business finances with SiamAccount
Stop wrestling with paperwork and numbers. Our accounting and CFO advisory team will restructure your EBITDA to give the business the runway it needs to grow.
Frequently asked questions about EBITDA
Q1: Our new business has negative net profit — how can EBITDA be positive?
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This is very common. Early on you are likely carrying loan interest and heavy depreciation from fitting out premises or buying equipment. Adding those two back to a negative net profit can produce a positive EBITDA — which shows the underlying business is selling and generating cash.
Q2: Does EBITDA include operating expenses?
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Yes. Salaries, utilities and marketing are already deducted in arriving at operating profit, so EBITDA is the figure after those costs have been paid.
Q3: Which businesses should pay closest attention to EBITDA?
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Capital-intensive ones above all — hotels, factories, and equipment rental businesses. These carry heavy depreciation and interest, so net profit alone hides how much cash the operation genuinely produces.