What is the EBITDA margin? How to calculate it with the right formula? Why is it important? If you're looking for answers to these questions, you've come to the right place. In this article, you will learn everything you need to know about it. Furthermore, you will have access to an excel template that lets you calculate the EBITDA margin for more than 65,000 companies with just one click.
What is the EBITDA margin and why is it important?
The EBITDA margin provides a clear insight into the operating profitability and cash flow of a business relative to its total revenue. Since the EBITDA margin expresses operating profit as a percentage, investors can use the metric to compare companies of different sizes and industries while factoring out the impact of financing and accounting decisions.
It’s important to remember that excluding debt from a company’s earnings may not always be reflective of the company’s performance. This is especially true with high-debt companies since they will have a larger debt-to-equity ratio and, consequently, increased interest payments in comparison to other businesses. An additional drawback to using the EBITDA margin is that EBITDA is not regulated by GAAP. This means that companies can adjust the figure at will to reflect better financial performance than they actually have.
To know if a company's EBITDA Margin is high, you have to compare it to the other companies in the sector.
The easiest way to do that is to use the Finbox data explorer. Just follow these simple steps:
Sign Up for free at Finbox
Go to the Finbox data explorer
Select the company and the metric you want to check (In this case we want to check the EBITDA Margin.)
- Scroll down to Sector Benchmark Analysis
- Control in what percentile is your stock (As you can guess, Apple has one of the highest EBITDA Margin in the sector.)
How to calculate the EBITDA margin with the right formula
EBITDA Margin = EBITDA / Revenue
The EBITDA margin is calculated quite simply: just divide the EBITDA of a company by its revenue. If you are not familiar with the EBITDA metric, feel free to visit the Finbox article that details how to calculate it: EBITDA Article.
EBITDA Margin: Benchmarks by Sector
As of May 05, 2020, the sectors with the highest EBITDA margins are real estate, utilities, and energy. Consumer Discretionary, information technology, and industrials are the sectors with the lowest EBITDA margins.
You can get up to date stats and graphs like that directly in Excel with the Finbox Excel Add-in.
EBITDA Margin Example [+Excel Template]
I’ve created an example calculation of EBITDA margins to try out. To explore the EBITDA margins of the 65,000+ companies that Finbox supports, just change the ticker in the spreadsheet. Click here to open the spreadsheet in Google Sheets. Select File > Make a copy to modify the example calculation. If you are not already registered on Finbox, all you have to do is sign up for free here.
Finbox makes it easy to find companies that have high EBITDA margins. View the top 100 stocks with the highest EBITDA margins here.