EBITDA Margin
EBITDA Margin = EBITDA / Revenue
Measures operating profitability before depreciation, amortization, interest, and taxes. Useful for comparing firms with different capital structures.
Variables
Earnings before interest, taxes, depreciation, and amortization
Total sales or revenue
Example Calculation
Scenario
A company has $2M in revenue and $500K in EBITDA.
Given Data
Calculation
EBITDA Margin = 500,000 / 2,000,000 = 0.25
Result
25%
Interpretation
25 cents of every revenue dollar remain as operating profit before D&A, interest, and taxes.
When to Use This Formula
- ✓Comparing profitability across firms or industries
- ✓LBO and M&A analysis
- ✓Removing capital structure effects from profitability comparison
Common Mistakes
- ✗Treating EBITDA as a cash flow measure (it ignores CapEx and working capital)
- ✗Comparing EBITDA margins across very different industries
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Common questions about this formula
EBITDA strips out financing, tax, and accounting differences, making it easier to compare operating performance.
Not exactly. EBITDA ignores capital expenditures and working capital changes, which are real cash outflows. It is better understood as operating profitability before D&A. For true cash flow, use free cash flow instead.