Other income is generally not included in EBITDA. The metric is built to show what a company earns from its core operations, so revenue streams that sit outside the main business — interest on cash, dividends from minority stakes, gains on asset sales, insurance recoveries, foreign currency gains — belong below the operating line and stay out of the calculation. The exception is narrow: when the “other income” is actually what the business does for a living, as with banks, insurers, and REITs, it stays in.
Why Other Income Stays Out
EBITDA exists to isolate operating performance. It strips interest, taxes, depreciation, and amortization because those four reflect financing choices, tax jurisdiction, and accounting treatment rather than how well the business actually runs. The same logic drives the exclusion of other income. Interest earned on a money market account reflects treasury management, not sales. Rental income from an unused corner of a warehouse reflects real estate, not manufacturing. A foreign currency gain on an invoice paid in euros is incidental to the underlying sale.
Including non-operating revenue inflates EBITDA and suggests a level of sustainable earning power that doesn’t exist. A one-time $500,000 gain on old equipment, left in, makes the business look permanently more profitable than it is. That distortion then cascades, because analysts, lenders, and buyers all build decisions on top of the number.
Start From Operating Income to Avoid the Problem
On a standard multi-step income statement, “Other Income and Expense” sits below Operating Income and above pretax income. SEC reporting guidance directs companies to exclude non-operating items from operating income, so Operating Income has already done the sorting for you.
The cleanest EBITDA calculation starts there: take Operating Income and add back depreciation and amortization. Other income never enters the picture because it’s already below the line you started from.
The alternative route starts from Net Income and adds back interest, taxes, depreciation, and amortization. That path works, but it forces you to also strip out any non-operating gains or losses that have already flowed through the bottom line. This is where most mistakes happen. A company that earned $200,000 in interest on its cash reserves and another $150,000 from a small equity stake has to subtract both when working backward from Net Income to reach a clean EBITDA figure.
How to Treat Specific Non-Operating Items
If you’re normalizing from Net Income, these are the items that usually need to come out.
Gains and Losses on Asset Sales
When a company sells a long-term asset for more than book value, the gain is non-operational. Selling machinery at a $100,000 premium is a one-time event, not evidence of ongoing commercial strength. Subtract the gain. If the sale produced a loss, add it back, because it reduced Net Income but isn’t an operating cost. Loan agreements generally treat these the same way, normalizing EBITDA by stripping profits and losses from fixed asset sales.
Investment Income and Dividends
Dividends from minority equity stakes and interest from a bond portfolio reflect investment strategy, not operations. Even when the income recurs every year, it’s still excluded. A company earning a steady $250,000 from passive investments hasn’t improved its operational performance by that amount.
Legal Settlements and Insurance Recoveries
A $1 million insurance payout after a warehouse fire is a major cash event with nothing to do with how well the company sells its product. Strip it out. The same logic runs in reverse: a large legal settlement paid out should be added back when normalizing earnings, because it isn’t an ongoing cost of doing business.
Foreign Currency Gains and Losses
A U.S. manufacturer invoicing a European customer in euros might realize a small gain when the exchange rate moves favorably before payment arrives. These typically land in the other income section and come out of EBITDA for the same reason as everything else on this list.
When Other Income Actually Is the Business
The exclusion rule breaks down when the “other income” line is the core business. A bank earns most of its revenue from interest on loans and investments. Stripping interest income out of a bank’s EBITDA would gut the metric and leave you with something meaningless. The same holds for insurance companies, whose investment portfolios generate revenue central to the business model, and for real estate investment trusts, where rental income is the primary operation even though a manufacturer would classify the same line as non-operating.
The test is always whether the revenue is central to what the company does for a living. A software company earning interest on its cash pile treats that as other income. A commercial bank earning interest on its loan book treats that as operating revenue. Same line item, completely different treatment. If you’re analyzing a company in financial services or real estate, be careful about reflexively excluding income that looks peripheral but is actually the engine of the business.
Why the Classification Matters
EBITDA is the starting point for most middle-market business valuations. Buyers apply a multiple to EBITDA to arrive at an enterprise value, so any error in the figure gets multiplied. If EBITDA is overstated by $200,000 because non-operating income wasn’t stripped out, and the multiple is five, the resulting valuation is $1 million too high. The buyer overpays, or the deal falls apart during due diligence when the error surfaces.
The reverse hurts too. A seller who conservatively excludes income that is legitimately operational may end up undervaluing the business. Two companies with identical revenue but different EBITDA figures will command very different prices at the same multiple.
The stakes are just as high for borrowers. Lenders write EBITDA into credit agreements through minimum debt service coverage ratios and maximum leverage ratios. The EBITDA definition in a loan agreement is negotiated line by line and often differs from the standard analytical version. Most credit agreements start with consolidated net income, add back interest, taxes, depreciation, and amortization, then layer on specific adjustments: stripping gains and losses from asset sales, excluding extraordinary items, removing unrealized gains or losses. Non-operating income like investment returns is generally excluded. Including other income that the agreement’s definition excludes could make you think you’re in compliance when you’re actually in technical default, which gives the lender the right to accelerate the loan.
A Note on Adjusted EBITDA
Companies frequently report a modified version called Adjusted EBITDA, which starts with standard EBITDA and layers on additional discretionary adjustments meant to reflect “normalized” earnings. Management might add back a $750,000 severance package for a retiring executive or subtract a one-time gain from selling a patent portfolio.
Management decides what counts as unusual, and that discretion is where distortions creep in. A company can characterize recurring expenses as one-time adjustments, making the business look more profitable than it sustainably is. When evaluating an Adjusted EBITDA figure, check whether the “non-recurring” adjustments keep recurring year after year. Restructuring charges in five consecutive periods are not one-time costs.
Public companies face regulatory limits on this practice. Under Regulation G, any company that publicly discloses a non-GAAP financial measure must present the most directly comparable GAAP measure alongside it and provide a quantitative reconciliation showing how it got from one to the other.1eCFR. 17 CFR Part 244 – Regulation G For Adjusted EBITDA that typically means reconciling back to Net Income. The SEC staff has also warned that measures excluding normal, recurring, cash operating expenses can be considered misleading.2U.S. Securities and Exchange Commission. Non-GAAP Financial Measures
Regardless of how Adjusted EBITDA treats discretionary add-backs, the baseline rule on other income holds: non-operating revenue is excluded to keep the focus on what the business generates from its core activities.