← Business Metric: Financial (all topics)
EBITDA margin & the quality of EBITDA
What it is
Operating profit before interest, tax, depreciation and amortisation, as a percentage of revenue. It approximates cash operating profitability and is the most widely quoted margin in company reporting
It is not a defined accounting measure, so what is excluded varies by company
Impact on industries
- Strips out financing, tax and accounting depreciation, so it compares operating performance across companies with different capital structures
- Ignoring depreciation flatters capital-intensive businesses, where replacing the asset base is a real and recurring cost
- Because it is not standardised, one-off costs and exceptional items are excluded inconsistently, so margins are not always comparable
- It should be read against cash conversion - EBITDA that does not become cash is an accounting result rather than an economic one