EBITDA calculator is a financial metric used to analyze the company’s operational performance in a given year/quarter. It provides a holistic idea of the company’s business at an operational level to every investor. It is also used as a level playing field to compare companies at an operational level and ascertain their operational profitability.
So, what is EBITDA? The acronym stands for Earnings before Interest, Tax, Depreciation and, Amortization. It simply means the operating income (earnings) after subtracting it from the operational expenses. Operating income refers to company’s revenues from core business operations like sale of products/services. Operating expenses is the sum of the cost of goods sold, employee expenses, and, other expenses such as admin, marketing, and sales expenses. Upon considering these figures, you’ll get the EBITDA of a company. EBITDA, thus, tells you the total earnings of a company at the operating level before it has made any provisions for depreciation and paid any taxes and interest.
EBITDA margin, on the other hand, is an indicative feature of the company’s overall health. However, to get the EBITDA margin of a company—you need to know its EBITDA first. Using the EBITDA margin formula and with the help of an EBITDA margin calculator, you can find out the company's profitability and strength. Based on the EBITDA margin of a company, you can decide whether its stocks are worth an investment.
The EBITDA calculator is easy to use. Using the formula, the EBITDA margin calculator will automatically compute it for you. All you need to do is, enter the company’s net sales, raw material costs, employee costs, other operating expenses. You will receive the answer for EBITDA and EBITDA margin in an instant.
Here’s the formula:
EBITDA = Net sales – raw material costs – employee costs – other operating expenses.
Net sales are the sum of all the products sold in the company over a specific period. The costs of raw materials are the amount the paid to acquire raw materials to produce their goods. There are different types of employee costs. For a company, it is the cost of employing an individual and can include salary, incentives, training and development and paid leave. Other expenses are those that are core to company’s primary operations and include expenses like rent, insurance, power and fuel and repairs.
Once you have the EBITDA of a company, you can find the EBITDA margin calculation formula, as under.
EBITDA margin = EBITDA/Sales*100.
Let us understand this calculation with a simple example:
“Company A”
|
Particulars |
Amount (in ₹) |
|
Net sales |
2,00,000 |
|
Raw material costs |
1,00,000 |
|
Employee costs |
20,000 |
|
Other operating expenses |
10,000 |
|
Total operating expenses |
1,30,000 |
Using the formula as above, EBITDA of the company = Net sales- raw material costs- employee costs- other operating expenses
= ₹2,00,000 -₹1,00,000-₹20,000-₹10,000
EBITDA= ₹70,0000
Thus, the EBITDA of Company A is ₹70,0000
Now let us find out the EBITDA margin of this company i.e.
EBITDA margin = EBITDA/Net sales x 100
= 70000/200000 x 100
= 35%
Thus, the EBITDA margin of company A is 35%.
The EBITDA calculation helps you to draw a distinction between two companies from the same sector. It helps to analyze which one company is making better profits at an operational level. So, if you are looking at companies from the same sector, you must compare them with their EBITDA margins to understand which company is performance-wise better. Remember to always select a company with a higher EBITDA margin than its peers from the same industry sector. The EBITDA and its margin will help you determine which company is more suited to your risks and has the potential of giving you higher profits.
The EBITDA calculation is a financial metric used to determine a company’s operating profitability. Since it does not take into account the outside factors such as (taxes, interest and depreciation), it depicts the net operating income of the company in accounting standards. It indicates the shape and health of a company at an operational level. A higher EBITDA denotes that the company has fewer operating expenses and higher earnings, indicating that the company is lucrative for investment.
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EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It is a financial metric used to analyze the business performance of a company at an operational level. It is the net operating income of the company before it has made any provision for depreciation and paid any taxes and interest.
EBITDA margin indicates the company's overall health and denotes its profitability. The formula for EBITDA margin is = EBITDA/total revenue (R) x 100.
The EBITDA margin varies industry-wise. A good EBITDA margin is one with a higher margin than its other peers in the same industry.
EBITDA margin denotes the company's operating profitability. So, if your company has a high EBITDA margin, it means its business has healthy earnings profile and is profitable. Profitable means that it has more earnings than expenses.
EBITDA calculation does not take into account the capital structure of the business as well as capex intensity. So, there might exists a case wherein the margins look optically high of a particular business and is considered a healthy business proposition, however there is a substantial depreciation charge in the P&L account (below EBITDA level) which makes the overall profitability quiet muted. In such a scenario, it’s always beneficial to look at the overall return ratios of the company (RoCE) in conjunction with EBITDA & EBITDA margins.
Net income is the difference between the total expenses and the total income of a company. It takes into account all the expenses as well as other income that a company earns on surplus cash on balance sheet. EBITDA on the other hand, does not take all the expenses into account and neither takes other income in calculation. It calculates the company’s earnings before taking into account the charge of depreciation, interest and taxes. EBITDA is the profit of the company without expenses such as tax, depreciation while Net Income is the total earnings after taking into account all the expenses.
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