EBITDA margin
Earnings before interest, tax, depreciation and amortisation, as a share of revenue.
01 What it is
Why anyone looks at this number
Earnings before interest, tax, depreciation and amortisation, as a share of revenue.
It strips out financing and accounting choices, so it is the usual basis for comparing companies, setting debt covenants and pricing a deal.
02 The formula
How it is worked out
EBITDA margin = ebitda ÷ net_revenue grain : period × legal entity unit : percentage source : General ledger, with the D&A add-back from asset accounting
The add-back must come from asset accounting, not a manual journal. Hand-keyed add-backs are the most commonly restated number in a diligence pack.
03 Worked example
The same number, with real inputs
| Operating profit | €6.0m |
| Depreciation & amortisation | €3.2m |
| Net revenue | €50.0m |
| Calculation | (6.0 + 3.2) ÷ 50.0 |
| Result | 18.4% |
The 6.4 point gap between this and operating margin is the cost of the asset base. In a capital-light business that gap is small; here it is most of the story.
04 What moves it
Four things that actually change this number
Operating margin
The starting point before the add-back.
Capital intensity
A heavily invested business shows a large gap between EBITDA and operating profit.
Lease accounting
Where leases sit changes EBITDA without changing the cash you pay.
Add-back discipline
Every "one-off" added back is a judgement a buyer will challenge.
05 Where the number lives
The system, the record and the fields
| System of record | Key record | Fields you need |
|---|---|---|
| General ledger, with the D&A add-back from asset accounting | Company code and Asset class | operating_profit, depreciation, amortisation |
The add-back must come from asset accounting, not a manual journal. Hand-keyed add-backs are the most commonly restated number in a diligence pack.
06 How it goes wrong
Three ways this metric misleads people
Treating EBITDA as cash
It ignores working capital and capex entirely, so a growing business can post record EBITDA and run out of money.
Fix: Always show cash conversion next to it.Creative add-backs
Recurring costs relabelled as exceptional inflate the number until diligence removes them.
Fix: Keep an add-back register with a reason and an owner for each line.Covenant surprises
The lender's EBITDA definition differs from the management one and nobody reconciles them.
Fix: Model the covenant definition as its own governed metric, side by side.08 Questions
Frequently asked
Why do lenders and buyers use EBITDA?
It removes differences in financing, tax position and depreciation policy, which makes two businesses easier to compare. It is a comparison tool, not a measure of cash.
What is a normalised EBITDA?
Reported EBITDA adjusted for items judged not to recur. Every adjustment is an argument, so keep each one documented with evidence and an owner.
One definition, everywhere it is used
SCIKIQ stores this metric once and serves it to every dashboard, board pack and agent that asks.