Financial Encyclopedia
EBITDA margin
Definition
EBITDA margin is a profitability ratio that demonstrates how much in earnings a company is generating before interest, taxes, depreciation, and amortization, as a percentage of revenue.
Example
EBITDA margin calculated for PJSC Tatneft:
EBITDA margin (2017) = 200, 8 / 581,5 * 100% = 34,5%
EBITDA margin (2018) = 314, 8 / 793,2 * 100% = 39,7%
EBITDA margin (2019) = 328,4 / 827,0 * 100% = 39,7%
The calculations show that there is an uptrend, which indicates the efficiency of the business.
More detailed
EBITDA margin = EBITDA / Revenue * 100%
The higher the EBITDA margin, the lower the company's operating costs relative to total revenue, and the higher the company's efficiency.
Low EBITDA margins may indicate business problems with generating profits and the possible presence of high operating costs. To increase profitability, company has to reduce operating costs and interest expenses while maintaining the same revenue or increase revenue.
Investors compare the EBITDA margins of companies in the same industry with each other. The higher the score, the better.
According to Ranks methodology, this indicator is analyzed in the Financial position and Growth blocks and used along with other indicators to calculate the score.
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