How to Calculate EBITDA for a Pharmacy in Canada -

February 8, 2024

What is EBITDA?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. It’s an essential metric in finance, serving as a measure of a company’s operational profitability without factoring in the effects of costs related to financing or taxes. For a pharmacy operating in Canada, the EBITDA calculation steps provide a clear picture of its core business performance, particularly important for stakeholders, including owners, investors, and creditors. The calculation of EBITDA creates a level playing field of sorts, allowing one to compare businesses based on the same metrics.

EBITDA Calculation Steps

The best starting point for calculating EBITDA is with your annual financial statements prepared by your accountant.

Step 1: Start with Net Income

The Net Income line at the bottom of your Income Statement captures all the revenue and expenses related to running your pharmacy.
If this number is positive, that means your business had positive cash flow for the year, while a negative number indicates a loss.

Step 2: Add Back Interest Expenses

Interest expense pertains to any interest paid on debts, such as loans or lines of credit.
Obtain the total interest expense from the annual financial statements.
Sometimes financial statements group “interest and bank charges” together. Make sure you calculate just the interest portion as bank charges, such as monthly fees and debit/credit card fees are regular expenses when running your business.

Step 3: Add Back Taxes

EBITDA focuses on pre-tax earnings, so income taxes should be excluded to get a true operational profit analysis.
Add back the pharmacy’s income tax expense for the period.

Step 4: Add Back Depreciation and Amortization

In accounting, Depreciation is the process of spreading out the cost of a tangible asset, such as a piece of equipment, over time.
Amortization works similarly to depreciation but typically applies to intangible assets.
Include the annual depreciation and amortization expenses as recorded in the financial statements.

Example Calculation

Interpretation and Analysis

A positive EBITDA indicates that the pharmacy’s operations are profitable without considering the costs of financing, taxes, and non-cash expenses. The higher the EBITDA, the higher the value of your business. It is also recommended to track EBITDA over time to identify trends in your store’s profitability.

Conclusion

Understanding EBITDA for a pharmacy operating in Canada is a valuable tool in assessing the business’s performance. By accurately calculating and analyzing EBITDA, owners and management can make informed decisions and present a clear financial picture to stakeholders.

For more information: The benefits of reliable Financial Reports