EBITDA and FX Losses: How to Calculate EBITDA and What It Leaves Out

A company that invoices in US dollars and pays most of its costs in local currency can report a healthy EBITDA while a foreign exchange loss takes a large share of its profit. The reason is definitional: EBITDA is calculated before interest, taxes, depreciation and amortization, and FX differences typically sit outside that calculation. A reader who stops at EBITDA measures part of the result and believes it is the whole.

At Soulbit Academy, the CFO Kit continues with EBITDA, after reading the income statement in two currencies. Here we calculate EBITDA two ways, explain what it does not measure and show what FX losses hide. Soulbit does not replace your accountant or auditor.

What EBITDA is and what it measures

EBITDA is a company's earnings before interest, taxes, depreciation and amortization. It measures how much the operating business generates before financing decisions, tax burden and the accounting wear of long-lived assets. It is useful because it lets a reader compare operations across companies with different debt, tax and asset structures.

EBITDA is a management measure, not a line defined by IFRS. Each company can build it with small differences, so whoever publishes it should explain the calculation and reconcile it to net income.

It serves two concrete purposes. The first is comparing operating profitability across companies. The second is tracking one company over time, for example through the net debt to EBITDA ratio that lenders often monitor. Neither use requires EBITDA to be cash.

How to calculate EBITDA from the income statement: two routes

EBITDA can be calculated from the income statement two equivalent ways: add income taxes, net interest, FX differences and depreciation and amortization back to net income, or add depreciation and amortization to operating profit (EBIT). If the two routes disagree, a line is misclassified.

The first route starts at the bottom. Take net income, add the tax expense, add net finance costs, add FX losses (or subtract FX gains) and add depreciation and amortization. The second route starts at operating profit and adds back only depreciation and amortization.

The table compares the measures calculated from one income statement and shows what each leaves out.

Measure	What it includes	What it leaves out	What it is for
EBITDA	Revenue less operating costs that are paid	Depreciation, amortization, interest, taxes and FX differences	Comparing operations before financing and taxes
EBIT (operating profit)	EBITDA less depreciation and amortization	Interest, taxes and FX differences	Measuring operations including asset wear
Profit before tax	EBIT less interest and FX differences	Income taxes	Seeing the result after financing and currency effects
Net income	Everything above less taxes	Nothing, but it does not separate operations from FX	Measuring what is left for owners
Operating cash flow	Actual cash received and paid by operations	Items with no cash movement	Knowing how much cash the company generated

EBITDA margin is EBITDA divided by revenue, as a percentage. A 22.5% margin means that of every 100 units sold, 22.5 remain after operating costs and before everything else. Compare a company with its own prior periods before comparing it with others.

Adjusted EBITDA: what gets added back and when it stops being comparable

Adjusted EBITDA is EBITDA after management adds back or removes items it considers non-recurring, such as restructuring, acquisition costs, impairments or gains on asset sales. Its value is showing recurring operations. Its risk is that each company decides what to adjust, so two adjusted EBITDA figures are rarely comparable.

A practical rule separates sound adjustments from doubtful ones. An adjustment is defensible if the item is identifiable, unlikely to recur and reconciled to net income line by line. It is doubtful if the company repeats it every quarter, removes only losses or does not explain it.

Accounting standards are moving toward that discipline. IFRS 18, effective for annual periods beginning on or after 1 January 2027, requires disclosure of management-defined performance measures: subtotals of income and expenses that IFRS does not specify and that management uses in public communications. An adjusted EBITDA may fall in that category and need a reconciliation in the notes. Your accountant should confirm whether it applies to your company.

When does an EBITDA adjustment stop being legitimate?

An adjustment stops being legitimate when the item recurs, when only expenses and never gains are removed, or when it cannot be reconciled to the financial statements. At that point adjusted EBITDA no longer describes operations and starts describing what management wishes it had earned.

EBITDA and FX losses: why foreign exchange differences fall outside it

FX differences fall outside EBITDA because, in common IFRS practice, they are presented in finance income and costs, below operating profit, and EBITDA is calculated before that result. Leaving them out is a presentation choice, not evidence that they are small or unrelated to the business.

That exclusion hides four things in a company with foreign-currency revenue:

• The real loss on receivables. If the company invoices in dollars and collects weeks later after the local currency has strengthened, the collection is worth less than the invoice. That loss follows directly from selling in dollars, but it does not appear in EBITDA.
• The cost of foreign-currency liabilities. A dollar loan or payable is remeasured at every closing, and EBITDA does not show whether that balance cost or saved money.
• The result of hedges. If the company hedges its exposure with derivatives, the hedge result is usually presented outside EBITDA, so the reader cannot see whether it offset the loss.
• The size of the exposure. Two companies with the same EBITDA can have very different FX losses depending on how much foreign-currency balance they hold and for how long.

EBITDA is still not immune to exchange rates. Converting revenue and costs in foreign currency at each transaction's rate is inside EBITDA. That rule comes from IAS 21, which requires exchange differences on monetary items to be recognized in profit or loss without fixing the presentation line.

Does an exporter's EBITDA reflect the exchange rate?

An exporter's EBITDA reflects the exchange rate on sales and local costs, but not on balances. If the local currency strengthens, each invoiced dollar buys less local currency and EBITDA falls, because local costs do not. If there is also a dollar receivable, the loss on that balance sits outside EBITDA and adds to the damage.

IFRS 18 may change this reading. The new standard creates operating, investing and financing categories, and FX differences tend to be classified in the same category as the item that gave rise to them. A loss on trade receivables would then move toward operating profit. Ask your accountant for a comparative analysis before 2027.

Worked example: EBITDA for a company with dollar revenue

To see the effect in numbers, take a fictional LATAM services company that invoices in US dollars and pays most costs in local currency. Every figure in this example, in thousands of US dollars, is an illustrative assumption: none is market data or belongs to any Soulbit client. Assume annual revenue of 10,000 and operating costs of 7,500, of which 5,000 are paid in local currency.

Line (USD thousands, assumption)	Route 1: from net income	Route 2: from EBIT	Reading
Revenue	10,000	10,000	Assumed annual sales
Operating costs, before depreciation	-7,500	-7,500	5,000 paid in local currency
EBITDA (25.0% margin)	2,500	2,500	Both routes must give the same figure
Depreciation and amortization	-500	-500	No cash movement
EBIT (20.0% margin)	2,000	2,000	Starting point of route 2
Net interest	-300	Not applicable	Financing
FX loss	-400	Not applicable	Loss on local-currency balances
Profit before tax	1,300	Not applicable	EBIT less interest and FX
Income tax (30%, assumption)	-390	Not applicable	Illustrative rate, not statutory
Net income	910	Not applicable	Add everything back to reach EBITDA

Route 1 starts at 910, adds 390 of tax, 300 of interest, 400 of FX loss and 500 of depreciation, and reaches 2,500. Route 2 starts at EBIT of 2,000, adds 500 and reaches the same figure.

The example gives three conclusions. First: the FX loss of 400 equals 4.0% of revenue and 16.0% of EBITDA, and does not appear in it. Second: if the local currency strengthens 5% and revenue stays at 10,000, the 5,000 of local costs rise to 5,250 in dollars, and EBITDA falls to 2,250, a 10.0% drop and a 22.5% margin. Third: that effect is inside EBITDA, so the measure captures conversion but not the loss on balances.

The limits of EBITDA and how to read it in an SMB with foreign-currency revenue

EBITDA does not measure the cash a company generates, because it ignores capital expenditure, changes in working capital, interest and taxes. A company with rising EBITDA can run out of liquidity if it collects late, carries high inventory or must replace equipment every year.

Four limits are worth remembering:

• Depreciation is not free. A company with equipment that wears out must replace it, and EBITDA leaves that cost out.
• Working capital consumes cash. If dollar receivables grow faster than sales, EBITDA rises and cash falls. The cost of that tied-up cash is analyzed in cash conversion cycle and the cost of idle cash.
• Interest and taxes are real. A heavily indebted company can have high EBITDA and small net income.
• Collection timing matters. To anticipate how much cash will arrive from foreign-currency sales, use a cash flow forecast for foreign-currency revenue.

An SMB with foreign-currency revenue should read EBITDA together with FX differences, EBITDA at constant exchange rates and cash flow. Those three readings separate what the business did from what the exchange rate did. With EBITDA alone, the two are mixed.

A four-step procedure makes it possible:

1. Calculate reported EBITDA by both routes and confirm they match.
2. Restate foreign-currency revenue and costs at a fixed rate, normally the budget rate, to get EBITDA at constant rates. The assumption is discussed in budget 2027 FX rate assumption.
3. Present net FX differences, realized and unrealized, as a separate line, without adding them to EBITDA.
4. Compare EBITDA with operating cash flow for the period and explain the gap.

If the volatility in reported EBITDA comes from exchange rates rather than operations, evaluate the instruments described in FX hedging for companies with USD revenue and LATAM costs. The decision to hedge belongs to the CFO and the treasury committee.

What Soulbit delivers today and what remains with the accountant

Soulbit V1 delivers company balances in stablecoins (USDC and USDT) and in fiat (USD, EUR and GBP), eOTC conversion by quote on request, a local banking rail in Colombia only, payment links, collection QR codes and recurring or batch payroll. Each movement keeps its date, amount and reference, and the history can be exported for reconciliation.

That traceability helps document the date and amount of each collection and, with it, calculate realized FX differences with evidence. The report is described in payment traceability for accounting records.

What Soulbit does not do: it does not calculate EBITDA, classify FX differences, prepare financial statements or decide accounting policy. It also does not integrate with the company's accounting software: there is no API or SDK in V1 and export is manual. It offers no FX hedging and no yield on balances. Classification and journal entries are defined by the accountant.