what is ebitda margin 
the acronym ebitda stands for earnings before interest taxes depreciation and amortization the ebitda margin is a measure of a company s operating profit as a percentage of its revenue knowing the ebitda margin allows for a comparison of one company s real performance with the performance of others in the same industry sydney saporito investopediaunderstanding ebitda margina company s interest taxes depreciation and amortization all have important implications for a business s finances however ebitda strips all of those numbers out in order to focus on the essentials operating profitability and cash flow this makes it easy to compare the relative profitability of two or more companies of different sizes in the same industry otherwise the numbers could be skewed by short term issues or disguised by accounting maneuvers calculating a company s ebitda margin is helpful when gauging the effectiveness of a company s cost cutting efforts the higher a company s ebitda margin is the lower its operating expenses are in relation to total revenue so a firm with revenue totaling 125 000 and ebitda of 15 000 would have an ebitda margin of alternatives to ebitda marginthere are a couple of alternatives to ebitda that are used by investors and analysts seeking to understand a company s profitability in any case the formula for determining operating profitability is a simple one ebitda or ebita or ebit divided by total revenue equals operating profitability any of these numbers ebitda ebita or ebit can be used to analyze a company s profitability however when comparing profitability between two or more companies it s important to always use the same calculation to get the most accurate results special considerationsebitda is known as a non gaap financial figure meaning it does not follow generally accepted accounting principles gaap the gaap standards are critical in ensuring the overall accuracy of financial reporting but they can be superfluous to financial analysts and investors that is interest taxes depreciation and amortization are not part of a company s operating costs and are therefore not associated with the day to day operation of a business or its relative success however ebitda is calculated using gaap results from a business s financial statements 1advantages and disadvantages of ebitda marginthe ebitda margin tells an investor or analyst how much operating cash is generated for each dollar of revenue earned the benefit of this calculation is that it can be used as a comparative benchmark to compare businesses within the same industry for example a small company might earn 125 000 in annual revenue and have an ebitda margin of 12 while a larger company might earn 1 250 000 in annual revenue but have an ebitda margin of 5 this indicates that the smaller company operates more efficiently and maximizes its profitability the larger company on the other hand probably focused on volume growth to increase its bottom line a good ebitda margin is relative however a higher number in comparison with its peers in the same industry or sector indicates a greater level of profitability the exclusion of debt has its drawbacks when measuring the performance of a company some companies highlight their ebitda margins as a way to draw attention away from their debt and enhance the perception of their financial performance companies with high debt levels should not be measured using the ebitda margin large interest payments should be included in the financial analysis of such companies in addition the ebitda margin is usually higher than the profit margin companies with low profitability will emphasize ebitda margin as their measurement for success finally companies using the ebitda figure are allowed more discretion in calculating it because ebitda isn t regulated by gaap in other words a firm can skew the figure in its favor 