EBITDA Bridge from Net Income

Accounting & Financial Statements

The prompt

“Starting from Net Income, walk me through every add-back needed to get to EBITDA — and explain why each one belongs there.”

📋 What you're given

Starting from Net Income, walk me through every add-back needed to get to EBITDA — and explain why each one belongs there.

1. Task Overview

Task: build the bridge from Net Income up to EBITDA, explaining what each add-back represents and why it belongs there.

Step 1: Given Data — Income Statement Extract

You are given the following figures from a company's income statement for the most recent fiscal year.

Line Item	Value
Net Income	$60.0m
Taxes	$20.0m
Interest Expense	$15.0m
Depreciation & Amortization (D&A)	$35.0m

Step 2: Pre-Tax Income (EBT)

Show Pre-Tax Income Formula

EBT = Net Income + Taxes

Using this formula, compute Pre-Tax Income (EBT).

Step 3: EBIT

Show EBIT Formula

EBIT = EBT + Interest Expense

Using this formula, compute EBIT (Earnings Before Interest and Taxes).

Step 4: EBITDA

Show EBITDA Formula

EBITDA = EBIT + D&A

Using this formula, compute EBITDA.

💡 Model answer

Try answering out loud first — then reveal the model answer and compare.

⚠️ Common mistakes

Starting the bridge from Revenue or EBIT instead of Net Income, which is what the bridge is actually asking for
Adding back D&A before Interest and Taxes — order matters conceptually even if the arithmetic sum is the same
Confusing EBIT and EBITDA, or treating them as interchangeable
Forgetting that Taxes here means the tax expense on the income statement, not a rate applied to a different base
Not recognizing that EBITDA is a calculated, non-GAAP metric — it doesn't appear as a literal line on most income statements

🔁 Follow-up questions

Why do analysts use EBITDA instead of Net Income as the base for valuation multiples? 🔒 sign up free to view
If a company has significant Stock-Based Compensation, should it be added back to get to EBITDA? 🔒 sign up free to view
How would this bridge change if the company also had a large one-time restructuring charge? 🔒 sign up free to view
Why can't you just look at EBITDA and ignore Net Income entirely? 🔒 sign up free to view

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