Other income is generally not included in EBITDA. EBITDA measures profitability from a company’s core, ongoing operations, so revenue streams that fall outside the primary business — interest on cash reserves, dividends from minority stakes, gains on asset sales, insurance recoveries, foreign currency gains — are excluded. The main exception is when the item the income statement calls “other income” is actually the business itself, as it is for banks, insurers, and real estate investment trusts.
What Counts as Other Income
On a standard multi-step income statement, “Other Income and Expense” sits below Operating Income and above pretax income. That placement is the signal: everything grouped there is, by the company’s own classification, not part of day-to-day business. Typical entries include dividends received, interest earned on cash balances, gains or losses on securities, and earnings from equity method investments. SEC reporting guidance directs companies to exclude these items from operating income.
Because EBITDA is built on operating performance, anything sitting below the operating line is on the wrong side of the fence. The reasoning is straightforward. 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 currency gain on an invoice paid in euros is incidental to the underlying sale. None of it tells you whether the business is getting better or worse at what it actually does.
Leaving these items in the number inflates EBITDA and suggests a level of sustainable operating earning power that isn’t really there. A one-time $500,000 gain from selling old equipment, if included, makes the business look permanently more profitable. Because lenders, buyers, and analysts use EBITDA to project future cash flows, an inflated figure cascades into every decision built on top of it.
Whether You See Other Income Depends on How You Calculate
There are two common ways to build EBITDA, and only one of them puts you at risk of accidentally including other income.
The cleaner method starts with Operating Income and adds back depreciation and amortization. Operating Income already excludes everything below the operating line, so other income never enters the calculation. You don’t have to remember to strip it out because it was never in.
The alternative starts with Net Income and adds back interest, taxes, depreciation, and amortization. This path runs through the bottom of the income statement, which means any non-operating gains or losses have already flowed into the number you started with. To get to a clean EBITDA, you have to back them out. A company that earned $200,000 in interest on its cash reserves and another $150,000 from a small equity stake would need to subtract both when working backward from Net Income.
How to Treat Specific Non-Operating Items
Gains and Losses on Asset Sales
When a company sells a long-term asset for more than its book value, the gain is non-operational. Selling a machine at a $100,000 premium is a one-time event, not evidence of ongoing commercial strength. Working from Net Income, subtract the gain. If the asset sold at a loss, add the loss back, because it reduced Net Income but isn’t an operating cost. Loan agreements typically strip out both directions for the same reason.
Investment Income and Dividends
Dividends from minority equity stakes and interest from a bond portfolio reflect the company’s investment strategy, not its operations. Even when this income arrives every year like clockwork, it still gets excluded. A company earning a steady $250,000 annually 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 real cash event, but it has nothing to do with how well the company sells its product. Strip it out. The same logic works in reverse: a large legal settlement paid by the company gets 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 before payment arrives. These gains and losses usually land in the other income section and get excluded from EBITDA for the same reason as the rest: they don’t reflect how well the core business performs.
The Exception: When Other Income Is the Business
The rule flips when the income statement’s “other income” line actually is the company’s main activity. 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 reasoning applies to insurance companies, whose investment portfolios generate revenue central to the business model, and to real estate investment trusts, where rental income is the primary operation even though a manufacturer would classify the same revenue as non-operating.
The test is always whether the revenue stream is central to what the company does for a living. A software company earning interest on its cash treats it as other income. A commercial bank earning interest on its loan book treats it as operating revenue. Same line item, 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 really the engine of the business.
Adjusted EBITDA Complicates the Picture
Many companies report a modified version called Adjusted EBITDA, which starts with standard EBITDA and then layers on discretionary adjustments meant to reflect “normalized” earnings. Management might add back a $750,000 severance package or subtract a one-time gain from selling a patent portfolio. The stated goal is to show what the business earns under normal conditions.
The problem is that management decides what counts as unusual. Recurring expenses sometimes get characterized 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” items keep recurring. Restructuring charges reported in five consecutive periods aren’t one-time costs.
Public companies face constraints here. Under Regulation G, any company that publicly discloses a non-GAAP measure must present the most directly comparable GAAP measure alongside it and provide a quantitative reconciliation.1eCFR. 17 CFR Part 244 – Regulation G For Adjusted EBITDA, the reconciliation typically runs 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
If You Have EBITDA-Based Loan Covenants, the Contract Wins
Lenders often build EBITDA into enforceable covenants, requiring borrowers to maintain a minimum debt service coverage ratio or a maximum leverage ratio. The EBITDA definition in a credit agreement is negotiated line by line and can differ from the standard analytical version.
Most credit agreement definitions start with consolidated net income and then add back interest, taxes, depreciation, and amortization. From there, the agreement specifies additional adjustments: gains and losses from asset sales get stripped, extraordinary items are excluded, unrealized gains or losses are removed. Non-operating income like investment returns is generally excluded to focus the number on sustainable operating profitability. The specific exclusions and add-backs vary between agreements.
Getting the calculation wrong can trigger a technical default, which gives the lender the right to accelerate the loan. If your company has debt with EBITDA-based covenants, the definition in your credit agreement controls. Read it carefully. Including other income that the agreement’s definition excludes could put you in violation while you think you’re in compliance.