EBITDA margin
EBITDA margin is operating profit before depreciation and amortisation as a percentage of sales. It approximates the cash profit from operations before any capital spending.
Formula
EBITDA margin
EBITDA Margin (%) = EBITDA ÷ Sales × 100
EBITDA
EBITDA = Operating Profit + Depreciation + Amortisation
Benchmark: Useful for comparing capital-intensive peers; never mistake it for free cash
Reading the number
Depreciation is an accounting charge that spreads the cost of plant over its life. Adding it back gives a margin that is not distorted by whether a company bought its factory last year or twenty years ago. That makes EBITDA margin the standard comparison in cement, steel, telecom, hotels, and any business where the plant is the product.
The weakness is the same as the strength. Depreciation is not a real cash cost this year, but plant does wear out and must be replaced. A business that reports a fat EBITDA margin and then spends all of it on replacement capex has no free cash flow at all.
Indian example
Related ratios
Glossary terms
From the research
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