## What is EBITDA Margin?
The **EBITDA Margin** is a profitability ratio that compares the EBITDA of a company to its revenue in the coinciding period, expressed as a percentage.

In practice, the EBITDA margin is widely used to measure a company’s core operating efficiency and for comparability because EBITDA is unaffected by financing decisions (i.e. capital structure neutral), discretionary accounting decisions, and jurisdiction-dependent taxes.

### Key Takeaways
- The EBITDA margin is the ratio between a company’s EBITDA and net revenue, expressed as a percentage.
- The EBITDA margin is a non-GAAP measure of operating performance intended to measure a company’s core profitability on a normalized basis.
- The formula to calculate the EBITDA margin divides EBITDA by net revenue in the corresponding period.
- A “good” EBITDA margin is industry-specific; however, an EBITDA margin in excess of 10% is perceived positively by most.

## How to Calculate EBITDA Margin
The [EBITDA](/content/knowledge/ebitda/index.html) margin is a measure of operating [profitability](/content/knowledge/profit-margin/index.html), calculated as the ratio between the EBITDA of a given company and the [net revenue](/content/knowledge/net-revenue/index.html) generated in the matching period.

### Steps to Calculate EBITDA Margin
1. **Collect Income Statement Data** → Gather the net revenue (i.e. the “top line”), [cost of goods sold (COGS)](/content/knowledge/cogs-cost-of-goods-sold/index.html), and [operating expenses](/content/knowledge/operating-expenses/index.html) amounts from the income statement.
2. **Retrieve Non-Cash Items from Cash Flow Statement** → Obtain the [depreciation](/content/knowledge/depreciation/index.html) and [amortization](/content/knowledge/intangible-assets-amortization/index.html) (D&A) amount from the cash flow statement (CFS), including other non-cash add-backs.
3. **Compute EBIT** → Calculate [EBIT](/content/knowledge/ebit/index.html), or “operating income” by subtracting COGS and OpEx from revenue.
4. **Calculate EBITDA** → Based on the non-cash and non-recurring items found on the cash flow statement (CFS), adjust EBIT to normalize the profit metric (e.g. treatment of D&A as non-cash add-back).
5. **Divide EBITDA by Net Revenue** → Divide the EBITDA of the company by the corresponding net revenue figure to arrive at the EBITDA margin for the company.

## EBITDA Margin Formula
The formula for calculating the EBITDA margin is EBITDA divided by revenue, expressed as a percentage.

**EBITDA Margin (%)** = EBITDA **÷** Net Revenue

Where:
- EBITDA = Operating Income (EBIT) + D&A
- Net Revenue = Gross Revenue – Returns – Discounts – Sales Allowance

For instance, suppose a company generated $10 million in net revenue in 2023, while incurring $4 million in [cost of goods sold](/content/knowledge/cogs-cost-of-goods-sold/index.html) (COGS) and $2 million in operating expenses (Opex).

### Example Calculation
- **Net Revenue** = $10 million  
- **Cost of Goods Sold (COGS)** = $4 million  
- **Operating Expenses (Opex)** = $2 million  
- **Depreciation and Amortization Expense (D&A)** = $1 million (Included in Opex)

The EBITDA margin is calculated:  
**EBIT** = $10 million – $4 million – $2 million = $4 million  
**EBITDA** = $4 million + $1 million = $5 million  
**EBITDA Margin (%)** = $5 million ÷ $10 million = 50.0%

## What is a Good EBITDA Margin?
The EBITDA margin provides a picture of how efficiently a company’s revenue is converted into EBITDA.

### Key Comparison Uses
1. Compares against its own historical results (i.e. profitability trends from the previous periods)
2. Compare vs. competitors in the same (or relatively similar) industries

### Interpretations
- **Higher EBITDA Margin** → Companies with higher EBITDA margins relative to the industry average are likely more efficient.
- **Lower EBITDA Margin** → Companies with lower EBITDA margins may indicate weaknesses in the business model.

## EBITDA Margin vs. Operating Margin: What is the Difference?
- **Operating Margin** (%) = EBIT **÷** Revenue
- The difference between the EBITDA margin and operating margin is due to the exclusion of depreciation and amortization in the EBITDA calculation.