EBITDA margin

A margin is a profit number expressed as a percentage of revenue. It tells you how many cents of each sales dollar the company keeps at a given point on the income statement.

EBITDA margin measures what percentage of revenue is left after the cash operating costs of the business, but before depreciation and amortisation, interest, and taxes. Because depreciation and amortisation are non cash accounting charges, EBITDA margin gives a rough sense of the cash generating power of the operation itself.

The formula is: EBITDA / Revenue x 100 = EBITDA margin

It is most useful for comparing companies with very different levels of fixed assets or different acquisition histories, because it removes the accounting effects of how those assets are written down over time. The trade-off is that it ignores real costs: depreciation reflects the wearing out of equipment and intangible assets that will eventually need to be replaced.