EBITDA for Swiss SMEs: definition, calculation and limitations

Why might a Swiss business use EBITDA?

A business owner may track EBITDA to monitor performance before depreciation and amortisation. A lender may use it when assessing borrowing, while a buyer may refer to it in valuation discussions.

Those uses require comparable figures. A business that owns equipment and one that rents similar assets can report different EBITDA depending on their accounting treatment. The reporting framework and contractual definition matter.

The Swiss Code of Obligations does not require every SME to report a universal EBITDA line. The income statement remains the starting point. Operating profit, net profit and cash flows should remain visible in the analysis.

SIX regulates alternative performance measures for issuers within the scope of its directive. Its requirements include clear definitions and, where relevant, reconciliation to financial statement figures. For an unlisted SME, applying similar discipline is good reporting practice, not a general obligation imposed by that directive.

How do you calculate EBITDA?

A common method starts with operating profit after depreciation and amortisation, then adds back the depreciation and amortisation included in that result:

Operating EBITDA = operating profit after depreciation and amortisation + depreciation and amortisation included in the definition.

Depreciation generally relates to tangible assets; amortisation to intangible assets. Not every impairment, provision or loss is automatically depreciation or amortisation to add back. Some measures adjust for these items and others do not.

Another method starts with net profit, adds back corporate income tax, reverses the relevant net financing result and adds depreciation and amortisation. Finance income, non-operating items or other differences in scope must be addressed explicitly to reach the intended measure.

A simplified formula works only when its assumptions fit the accounts. In particular, net income means net profit, not net revenue.

Worked example: EBITDA and its reconciliation to net profit

Consider an SME with CHF 1,000,000 of sales. Assume no finance income, no non-operating items and no exceptional adjustments. The tax figure is an illustrative assumption.

Working back from net profit: CHF 110,500 + CHF 19,500 + CHF 20,000 + CHF 50,000 = CHF 200,000 EBITDA.

The EBITDA margin is CHF 200,000 ÷ CHF 1,000,000 × 100 = 20%. On the definition used, 20 centimes of each franc of sales remain before depreciation, amortisation, interest and corporate income tax.

This CHF 200,000 result is different from gross profit and net profit. It should not be added to revenue or described as a bank balance.

EBITDA, EBIT and cash flow: what changes?

In our example, EBIT is measured after depreciation and amortisation and amounts to CHF 150,000. It therefore reflects the consumption of equipment and other depreciable or amortisable assets.

EBITDA excludes those charges, but the business still needs to replace its machinery. Capital expenditure does not disappear because it falls outside the measure.

The gap to cash is wider still. Starting from the CHF 200,000 EBITDA above, suppose an additional CHF 70,000 is tied up in receivables and inventory, CHF 80,000 is invested, CHF 20,000 of interest is paid and tax payments are CHF 19,500. Only CHF 10,500 remains before repayment of loan principal and any other movements.

This bridge to cash is deliberately simplified. A cash flow statement documents the full reconciliation. The working capital requirement explains why a growing business can absorb substantial cash.

How should adjusted EBITDA be presented?

Adjusted EBITDA removes or modifies selected items to show a performance considered more representative. Depending on the context, these may include an unusual event or owner remuneration to normalise for a business sale.

Each adjustment should answer three questions: which accounting amount changes, why does it change and what evidence supports it? Apply the same scrutiny to favourable and unfavourable adjustments.

This is an additional analysis, not a correction to the statutory accounts. Repeated restructuring expenses or normal selling costs do not become exceptional merely because they are relabelled.

Owner remuneration is particularly sensitive in a small company. Where normalisation is appropriate, use a documented replacement salary and take account of the work that genuinely needs to be performed.

What should you check before financing or valuation discussions?

A net debt-to-EBITDA ratio can help assess borrowing. Calculate it using the definitions in the contract or analysis: which debt, which cash and which EBITDA? If EBITDA is zero or negative, the ratio loses its usual interpretation.

In a valuation, applying a multiple to EBITDA generally aims to estimate enterprise value. That is not directly the share purchase price: net debt and other adjustments may affect the equity value. No single multiple suits every SME.

Prepare several years of accounts, details of depreciation and amortisation, unusual items and expected investment needs. Review business trends and revenue too. Rising EBITDA can conceal customer concentration or postponed necessary spending.

Frequently asked questions