Definition:

EBITDA Margin is a financial metric that measures a company's operating profitability as a percentage of its total revenue, excluding the effects of interest, taxes, depreciation, and amortization.

Formula:

EBITDA Margin = (EBITDA / Total Revenue) * 100

How to use the metric:

EBITDA Margin is used to assess a company's operational efficiency and profitability. It helps investors and analysts compare profitability across companies and industries by eliminating the effects of financing and accounting decisions.

Limitations:

EBITDA Margin does not account for capital expenditures, changes in working capital, or other non-operating expenses. It can also be misleading for companies with significant debt or capital-intensive businesses, as it excludes interest and depreciation costs.

Applies to:

EBITDA Margin works best in industries with relatively stable capital expenditures and where companies have similar financial structures, such as technology, consumer goods, and services.

Doesn't apply to:

It may not be as useful in industries with high capital expenditures or significant debt, such as utilities and telecommunications, because it does not consider the impact of these factors on profitability.

Summary:

EBITDA Margin is a useful metric for evaluating a company's operational profitability and efficiency, allowing for comparisons across companies and industries. However, it has limitations, particularly in capital-intensive industries, as it excludes important financial considerations like interest and depreciation.