While looking at a company’s finances, you may have come across something called EBITDA. What is EBITDA, and why is it important? EBITDA is crucial as it gives you a good idea of a company’s performance after discounting financial, account, and tax issues. EBITDA is simply earnings before interest, tax, depreciation, and amortisation. The EBITDA margin is the ratio of EBITDA to revenue or EBIDTA divided by revenue. You can use an EBITDA calculator or EBIDTA margin calculator online to determine a company’s health.
EBITDA margin calculation is essential because it gives you a clearer picture of a company’s operating profitability and cash flow. It’s used a lot during mergers and acquisitions as it shows a clearer picture of performance across industries and sizes.
How to calculate EBITDA?
The easiest way is to use an EBITDA calculator online. It can also be done manually. If a company has revenues worth Rs 75 lakh, an operating profit of Rs 10 lakh, depreciation expenses of Rs 2 lakh, amortisation expense of Rs 1 lakh, and pays taxes worth Rs 1 lakh, the EBIDTA would be Rs 10 lakh minus (2+1+1), or Rs 6 lakh. Dividing EBIDTA by revenues would give you the EBIDTA margin, which in this case is 8 per cent.
The calculator needs you to enter revenue, tax, interest, depreciation and amortisation figures. An EBITDA calculator online is a convenient tool to gauge the profitability of a company. It should be part of your kit to evaluate investment opportunities.