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While investing in the company, one should look at the efficiency ratios, one such ratio is EBITDA Margin. Efficiency Ratios are an important parameter under fundamental analysis which helps to analyze numerical values present in a company’s financial statements. Efficiency ratios are used to analyze how well the company is using its assets to generate returns. It is used to measure the performance of the company, current, and past. We will discuss the impact of EBITDA margin on financial valuation.
Some of the important ratios are as follows:-
EBITDA Margin (%)
EBITDA (%) is an important parameter to measure a company’s operating profitability, expressed in the terms of percentage of its total revenue. It is calculated as earnings before interest, tax, depreciation, and amortization (EBITDA) divided by total revenue. An EBITDA margin helps an investor, business owner, or financial professional with an easy to perceive the company’s cash flow and operating profitability.
You can also watch the below video on Everything you want to know about EBITDA Margin:
Importance of EBITDA Margin (%)
EBITDA Margin is used to compare companies of different market capitalization and sectors because it breaks down operating profits in terms of percentage of revenue. A higher EBITDA is considered good as it signifies less operating expenses and higher company earnings. A rise in EBITDA also signifies the better performance of the company.
EBITDA Margin Formula:
Formula: EBITDA/Revenue
EBITDA Margin Example:
Suppose in 2016-17 the company sales is 50 crores and expenses excluding interest tax and depreciation or amortization are 45 crores then EBITDA is 5 crores
EBITDA margin % = 5/50= 10%.
Nowadays we don’t have to calculate EBITDA(%) on our own. StockEdge gives us EBITDA(%) of the last five years of any company listed in the stock exchange. We can look at and compare the EBITDA(%) of any company and filter out stocks accordingly.
Suppose we want to look at the EBITDA(%) of Suven Life Sciences Ltd. for the last 5 years. In the Fundamental tab of Suven Life Sciences Ltd, click on the fundamentals tab, we will get the Ratios tab. Then in the Ratios tab click on Efficiency Ratios, EBITDA(%) will come from Suven Life Sciences Ltd.
See also: EBITDA Growth (%)
Bottomline
EBITDA margin thus helps investors in making decisions in which company to invest by comparing the performance of the company with its peers. This data is easily available under the ratios section of each share for free. We also have scans based on EBITDA under the premium offering of StockEdge app, with the help of these you can filter out companies generating increasing EBITDA in seconds. If you still do not have the StockEdge app, download it right now to use this feature.
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