EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) margin provides an investor with a clean view of the core operating profitability of a business. It is a financial metric used to compare valuations in most industries. EBITDA varies from industry to industry and business to business. It is calculated as follows:
EBITDA = Profit + Depreciation & Amortization + Taxes + Interest Expense – Non-Operating income + Non-operating expenses
EBITDA Margin = EBITDA / Operating Revenue
For example consider the simple income statement and EBITDA computation shown below:
|
Item |
Amount |
|
Revenue (Sales from Services + Products) |
100 |
|
Cost of Goods Sold (COGS) |
-70 |
|
Gross Profit (GP) |
30 |
|
Operating Expenses (SG&A) |
-15 |
|
EBITDA |
15 |
|
Depreciation |
-5 |
|
EBIT |
10 |
|
Interest Expense |
-3 |
|
Profit Before Tax (PBT) |
7 |
|
Tax |
-2 |
|
Profit After Tax (PAT) / Net Profit |
5 |
Note that EBITDA is different from gross profit, product margin, and net profit.
