EBITDA Margin Template

What is an EBITDA Margin?

EBITDA margin is a financial metric that measures a company’s operating profitability as a percentage of its total revenue. It focuses on earnings before interest, taxes, depreciation, and amortization (EBITDA), which gives a clearer picture of core operational performance by excluding non-operational and non-cash expenses.

EBITDA Margin Formula

The EBITDA Margin is a profitability ratio that shows the recurring operating profit before depreciation and amortization as a percentage of sales.

It is calculated as:

EBITDA Margin= (EBITDA / Sales) x 100

Where:

• EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization
• Sales = Total revenue or net revenue, depending on the context

This margin helps investors compare operational profitability across companies and periods by excluding non-cash and non-recurring items.

If a company had net revenues of $152,000 and EBITDA of $39,200, its EBITDA margin would be 39,200 / 152,000 = 25.8%.

Download the Free Template

Download the free Financial Edge Excel template to calculate and analyze EBITDA and EBITDA margin using real financial data. This template is designed to:

• Assess a company’s operational profitability
• Use inputs from the income statement and cash flow statement
• Normalize EBITDA by removing non-recurring and non-operational items

Steps to Use the Template

1. Download the free Excel template.
2. Input the income statement using the provided headings. Insert more line items if required
3. Add details from the financial footnotes, specifically depreciation and amortization (which may be provided separately or as a single item)
4. Add any other details from the financial footnotes relating to any non-core, non-recurring operating items
5. Add the marginal tax rate (typically the domain where the company is based)
6. To calculate EBITDA, take profit before interest and tax, and add back depreciation and amortization.
7. Add back any non-core or non-recurring losses (or subtract any non-core or non-recurring gains)
8. This will then calculate EBITDA
9. The EBITDA margin is automatically calculated as follows: it takes the EBITDA line and divides it by the revenue figure (row 7)
10. Save the template and use it to compare a variety of companies

Why EBITDA Margin Matters

The EBITDA margin indicates the percentage of each dollar of revenue that is converted into EBITDA. It is useful for comparing companies across industries or geographies, especially when accounting standards differ. It excludes non-core costs by removing interest, taxes, depreciation, and amortization, and focuses purely on operational performance.

What is a “Good” EBITDA margin?

A company’s EBITDA margin will depend on the sector it operates in and the prevailing economic conditions. Typically, a “good” EBITDA margin will range between 20-25% for manufacturing or retail sectors. Other sectors, such as Technology, may have much higher margins.

Analysts will be keen to see an improving EBITDA margin year-over-year for a company, unless market conditions are proving difficult for the sector. Robust sales and strong operating performance will help boost EBITDA margins. Similarly, the margin must be competitive versus peers both in the sector and in similar-sized companies.

What is a “Bad” EBITDA margin?

Investors would typically be concerned if an EBITDA margin had a declining trend over a period of time. This would suggest that the business is either falling behind competitors or that the sector landscape may have deteriorated. EBITDA margins should always be positive; otherwise, a company is not generating a profit. Low EBITDA margins may be considered acceptable if the company operates in a low-margin sector. For example, non-branded or own-label retail and manufacturing often operate on low margins. Investors may have their own view or threshold on what is considered an acceptable EBITDA margin.

Conclusion

EBITDA margin is a universally used profitability metric that gauges the strength of a company’s operating performance. It is a ratio that allows companies to be compared to both their peer group and to historic performance. Often, analysts will use a forecast EBITDA margin for the upcoming 24 months to help make investment decisions.

Investors prefer EBITDA metrics as they focus on the profitability of core operations and strip out financial and accounting impacts, such as interest, depreciation and amortization. Thus, it helps create a more level playing field where companies with high or low debt and varying depreciation policies can be compared.