EBITDA is earnings before interest, tax, depreciation and amortisation: profit with finance costs, tax and the charges for using up long-term assets added back. It is used as a rough measure of operating performance and of the profit available to service debt. IFRS does not define it, so each company's EBITDA must be read with its definition.
What is EBITDA?
EBITDA starts from profit and adds back four items: interest, meaning finance costs including profit paid on Islamic financing; tax on income; depreciation of property, equipment and right-of-use assets; and amortisation of intangible assets. What remains shows how the operations perform before financing choices, tax and the accounting for past investment. Companies that pay zakat should say whether their EBITDA is before or after it.
IFRS Accounting Standards do not define EBITDA. IFRS 18, which applies to annual periods beginning on or after 1 January 2027, lists operating profit or loss before depreciation, amortisation and impairments within the scope of IAS 36 among the subtotals that are not management-defined performance measures (paragraph 118). A different measure, such as an adjusted EBITDA used in public communications to show management's view of performance, is a management-defined performance measure (paragraph 117), and the company must disclose it in a single note (paragraph 122).
How do you calculate EBITDA?
| Line | SAR |
|---|---|
| Net profit after tax and zakat | 2,000,000 |
| Add: income tax and zakat | 300,000 |
| Add: finance costs (interest and murabaha profit) | 500,000 |
| EBIT | 2,800,000 |
| Add: depreciation | 900,000 |
| Add: amortisation | 100,000 |
| EBITDA | 3,800,000 |
You can also start from operating profit and add back depreciation and amortisation. Either way, write down what is in and what is out: impairments, one-off items and zakat are the usual sources of difference. Under IFRS 16 a lessee shows interest on the lease liability separately from depreciation of the right-of-use asset (paragraph 49), so for leases on the balance sheet both parts of the cost sit outside EBITDA. See IFRS 16.
How is EBITDA used?
Why does EBITDA matter for GCC finance teams?
Lenders and investors use it. Facility agreements often cap net debt to EBITDA, and valuations are often quoted as a multiple of EBITDA. Management uses EBITDA margin to compare companies in a group with different financing and asset ages, and variance analysis explains why it moved.
EBITDA is not cash. It ignores working capital, capital spending, and tax and zakat paid, so read it beside the cash flow statement.
In Saudi Arabia, SOCPA adopted IFRS 18 for use in the Kingdom in December 2024, allowing early adoption. Companies that publish an adjusted EBITDA should check whether it becomes a management-defined performance measure that needs its own note.
Questions people ask
Is EBITDA the same as operating profit?
No. Operating profit is after depreciation and amortisation, and EBITDA adds them back. From IFRS 18, operating profit is a defined subtotal in the income statement, while EBITDA is not.
What is adjusted EBITDA?
EBITDA with further items removed, such as one-off restructuring costs or impairments. Because the adjustments are the company's choice, adjusted EBITDA can differ widely between companies, so read the reconciliation.
Should zakat be added back in EBITDA?
There is no rule. Zakat is levied on the zakat base rather than on profit, so decide whether your EBITDA is before or after it, state the definition, and keep it the same every period.
Official and primary sources, read on the date shown. Rules change: confirm with the authority or your adviser before you act.
- IFRS Foundation: IFRS 18 Presentation and Disclosure in Financial Statements (issued standard, HTML), paragraphs 117, 118, 122 and C1 (read 9 October 2026)
- IFRS Foundation: IFRS 16 Leases (issued standard, HTML), paragraph 49 (read 10 October 2026)
- SOCPA news: SOCPA adopts IFRS 18 for implementation in Saudi Arabia (26 December 2024) (read 9 October 2026)