EBITDA Margin
EBITDA (earnings before interest, taxes, depreciation, and amortization) divided by revenue. Operating profitability with non-cash D&A added back.
When to use: Use for capital-intensive industries where D&A swings dominate net income (telecom, utilities, real estate, industrials). Also the standard metric for LBO and M&A valuation discussions. But note: EBITDA ignores the cost of replacing depreciating assets — pair with FCF for a cash-realistic view.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| EBITDAMargin | EBITDA Margin | EBITDA divided by revenue | % |
| EBITDA | EBITDA | Earnings before interest, taxes, depreciation, and amortization | $ |
| Sales | Annual Sales | Annual revenue (net sales) | $ |
Real-Life Examples
Example 1: Capital-Intensive Industrial
EBITDA $600M (= EBIT $400M + D&A $200M), revenue $2,000M.
Given
Step-by-Step
30% EBITDA margin vs 20% operating margin — the 10pp gap reflects D&A. For a capital-intensive business, high EBITDA margin can mask the ongoing capex required to maintain operations. Always pair with FCF.
Frequently Asked Questions
EBITDA adds back depreciation and amortization. The gap = (D&A) / Revenue. Capital-intensive industries (utilities, telecom, hotels, semiconductors) show wide gaps; asset-light services show narrow ones.
When capex needs are large and ongoing. Charlie Munger famously calls EBITDA "bullshit earnings" because adding back D&A pretends the depreciation cost will never be replaced. For asset-heavy firms, FCF is the honest version.