EBITDA

The standard formula for calculating EBITDA is: EBITDA = Net Income + Interest Expense + Tax Expense + Depreciation + Amortization. Alternatively, it can be calculated starting from operating income (EBIT): EBITDA = Operating Income + Depreciation + Amortization. The calculation is straightforward, but its application in the high-growth fintech context requires nuance. For instance, a neobank with $500 million in annual revenue might report a net loss due to aggressive marketing spend (interest expense) and significant investment in proprietary technology (depreciation/amortization). If their Net Income is -$50 million, but they have $15 million in Interest Expense, $5 million in Tax Expense (deferred), $30 million in Depreciation, and $10 million in Amortization, their EBITDA would be: -$50M + $15M + $5M + $30M + $10M = $10 million. This positive EBITDA of $10 million, despite the net loss, signals to investors that the core business operations are profitable, and the net loss is primarily driven by strategic, non-cash investments and financing decisions. This is crucial for early-stage fintechs that prioritize market share and technology build-out over immediate GAAP profitability. For example, a payments processing platform might have an EBITDA margin of 25% (EBITDA/Revenue), which is considered healthy for a software company, even if high R&D costs push their net income below zero. The EBITDA metric allows investors to compare the operational efficiency of this payments platform against a traditional bank, which may have a lower EBITDA margin but a higher net income due to less aggressive growth spending. The focus shifts from immediate profit to the efficiency of the core business model and the potential for future cash generation once growth spending slows, making it a key indicator of a fintech's path to sustainable scale.