Financial Statement Analysis

- Ratio Analysis of Financial Statements (Formula, Types, Excel)
- Ratio Analysis Advantages
- Ratio Analysis
- Liquidity Ratios
- Cash Ratio
- Cash Ratio Formula
- Quick Ratio
- Quick Ratio Formula
- Current Ratio
- Current Ratio Formula
- Acid Test Ratio Formula
- Defensive Interval Ratio
- Working Capital Ratio
- Working Capital Formula
- Net Working Capital Formula
- Changes in Net Working Capital
- Cash Flow from Operations Ratio
- Cash Reserve Ratio
- Operating Cycle Formula
- Current Ratio vs Quick Ratio
- Bid Ask Spread
- Liquidity vs Solvency
- Liquidity
- Solvency
- Solvency Ratios
- Equity Ratio
- Capital Adequacy Ratio
- Liquidity Risk
- Altman Z Score

- Turnover Ratios
- Inventory Turnover Ratio
- Accounts Receivable Turnover
- Accounts Receivables Turnover Ratio
- Accounts Payable Turnover Ratio
- Days Inventory Outstanding
- Days in Inventory
- Days Sales Outstanding
- Average Collection Period
- Days Payable Outstanding
- Cash Conversion Cycle
- Cash Conversion Cycle (CCC) Formula
- Fixed Asset Turnover Ratio Formula
- Debtor Days Formula
- Working Capital Turnover Ratio

- Profitability Ratios
- Profitability Ratios Formula
- Common Size Income Statement
- Vertical Analysis of Income Statement
- Profit Margin
- Gross Profit Margin Formula
- Gross Profit Percentage
- Operating Profit Margin Formula
- EBIT Margin Formula
- Operating Income Formula
- Net Profit Margin Formula
- EBIDTA Margin
- Degree of Operating Leverage Formula (DOL)
- NOPAT Formula
- OIBDA
- Earnings Per Share
- Basic EPS
- Diluted EPS
- Basic EPS vs Diluted EPS
- Return on Equity (ROE)
- Return on Capital Employed (ROCE)
- Return on Invested Capital (ROIC)
- Return on Sales
- ROIC Formula (Return on Invested Capital)
- Return on Investment Formula (ROI)
- ROIC vs ROCE
- ROE vs ROA
- CFROI
- Cash on Cash Return
- Return on Total Assets (ROA)
- Return on Average Capital Employed
- Capital employed Employed
- Return on Average Assets (ROAA)
- Return on Average Equity (ROAE)
- Return on Assets Formula
- Return on Equity Formula
- DuPont Formula
- Net Interest Margin Formula
- Earnings Per Share Formula
- Diluted EPS Formula
- Contribution Margin Formula
- Unit Contribution Margin
- Revenue Per Employee Ratio
- Operating Leverage
- EBIT vs EBITDA
- EBITDAR
- Capital Gains Yield
- Tax Equivalent Yield
- LTM Revenue
- Operating Expense Ratio Formula
- Overhead Ratio Formula
- Variable Costing Formula
- Capitalization Rate
- Cap Rate Formula
- Comparative Income Statement
- Capacity Utilization Rate Formula
- Total Expense Ratio Formula

- Efficiency Ratios
- Dividend Ratios
- Debt Ratios
- Debt to Equity Ratio
- Debt Coverage Ratio
- Debt Ratio
- Debt to Asset Ratio Formula
- Coverage Ratio
- Coverage Ratio Formula
- Debt to Income Ratio Formula (DTI)
- Capital Gearing Ratio
- Capitalization Ratio
- Interest Coverage Ratio
- Times Interest Earned Ratio
- Debt Service Coverage Ratio (DSCR)
- DSCR Formula (Debt service coverage ratio)
- Financial Leverage Ratio
- Financial Leverage Formula
- Degree of Financial Leverage Formula
- Net Debt Formula
- Leverage Ratios
- Leverage Ratios Formula
- Operating Leverage vs Financial Leverage
- Current Yield
- Debt Yield Ratio
- Solvency Ratio Formula

## What is EBITDA Margin?

EBITDA Margin is a profitability ratio that calculates how much of the EBITDA (earnings before interest depreciation and amortization) is generated as a percentage of Sales. EBITDA is found after deducting operating expenses (like Cost of Goods Sold, Selling General and Admin Costs etc) from the Total Sales. However, please note that it should exclude any depreciation and amortization.

We note from the above graph the EBITDA margins of Facebook, Apple, and Google.

- Facebook’s margin is currently around 52% and has been consistently higher than Apple and Google. This implies that 48% of the revenue is operating expenses.
- Apple’s Margin has been mostly in the range of 30-35%
- Google’s margin has been in the range of 30%-32% historically, however, in its most recent quarter it reported a lower EBITDA Margin of 19.46%.

### EBITDA Margin Formula

Here’s the EBITDA Margin Formula

To Calculate EBITDA Ratio, you can use the below formula

When we drill down on the term EBITDA Margin, the following components are revealed:

**EBI**= Earnings Before Interest Expense**T**= Taxes**D**= Depreciation**A**= Amortization

### EBITDA Margin Calculation of Starbucks

Let us see the EBITDA Margin calculation of Starbucks.

Below is the Income Statement snapshot of Starbucks Corp. We note that Earnings Before Interest Taxes Depreciation and Amortization is not directly provided in the income statement.

4.8 (388 ratings)

Source: Starbucks SEC Filings

**2017**

- EBITDA (2017) = EBIT (2017) + Depreciation and Amortization (2017)
**= $4,134.7 + $1,011.4 = $5,146.1 million** - EBITDA Margin Formula (2017) = EBITDA (2017) / Sales (2017) = 5146.1/22,386.8 = 22.98%

**2016**

- EBITDA (2016) = EBIT (2016) + Depreciation and Amortization (2016)
**= $4,171.9 + $980.8 = $ 5,152.7 million** - EBITDA Margin Formula (2016) = 5,152.7/21,315.9 = 24.17%

**2015**

- EBITDA (2015) = EBIT (2015) + Depreciation and Amortization (2015)
**= $3,601.0 + $893.9 = $ 4,494.9 million** - EBITDA Margin Formula (2015) = 4,494.9/19,162.7 = 23.45%

### EBITDA Margin Calculation of Colgate

Let us take another example of EBITDA Margin calculation

In Colgate’s Income statement, we are provided with the Operating Profit numbers i.e. EBIT. However, we are not provided with Depreciation and Amortization costs as a separate line item. This is because depreciation and amortization is included in the cost of sales and Selling admin and General Expenses.

source: Colgate SEC Filings

Therefore, we need to move to the cash flow statements to identify the Depreciation and Amortization figures which we can add back to EBIT to find EBITDA.

source: Colgate SEC Filings

EBITDA = EBIT + Depreciation and Amortization

- EBITDA (2017) = 3589 + 475 = $4064 million
- EBITDA Margin Formula (2017) = 4064 / 15454 = 26.3%
- EBITDA (2016) = 3837 + 443 = $4280 million
- EBITDA Margin Formula (2016) = 4280 / 15195 = 28.2%

### Why is EBITDA Margin important?

#### #1 – Considered to be Cash Operating Profit Margin

- It is basically a cash operating profit margin that does not include the effect of capital structure as well as non-cash items like depreciation and amortization.
- It provides us with the measure of how much cash the company is generating per unit revenue. (however, cash flow from operations per unit revenue can be more precise in this context)

#### #2 – Removes Non-Operating Effects

- EBITDA margin calculation basically removes nonoperating effects that are unique to each company. For example, if you compare companies in Oil and Gas sectors, each company may follow a different depreciation and amortization policies (straight-line depreciation policy, double declining method of depreciation etc). Also, their capital structures can be significantly different.
- EBITDA removes all these nonoperating effects and also helps to make a comparison between two companies.
- It is also useful for a year over year company analysis.

#### # – Alternative to Net Profit Margin

- Net Profit Margin includes the effect of depreciation and amortization, interest expenses as well as tax rates. However, EBITDA Margin does not get affected by such expenses even when the tax structures are very different.

### Drawbacks of EBITDA Margin

#### #1 – Window Dressing

Companies with low-profit margins may try to window dress their margin figures by highlighting EBITDA margin instead of Net Profit Margin.

#### #2 – EBITDA is a non-GAAP measure

Since EBITDA is a non-GAAP measure and is not regulated. Some companies may use it to portray a rosy financial situation of the company.

#### #3 – Can be incorrectly applied

This margin should not be used to compare companies with high debt capitalization as their interest expenses will be very high and EBITDA margins will not capture the amount of debt. Also, if you compare two companies, one with low debt capitalization and the other one with high debt capitalization, the findings may not lead to the correct conclusions.

### Industry EBITDA Margin

#### Apparel Industry

Below is the list of top companies in the Apparel Sector along with their margins

Name | EBITDA Margin (TTM) | Market Cap ($ Million) |

American Eagle Outfitters | 13.1% | 4464.8 |

Abercrombie & Fitch | 8.4% | 1639.9 |

Buckle | 17.9% | 1189.3 |

Chico’s FAS | 9.9% | 1131.5 |

DSW | 7.2% | 2224.8 |

Guess? | 5.5% | 1823.6 |

Gap | 12.6% | 11651.2 |

L Brands | 17.4% | 8895.5 |

Lululemon Athletica | 23.5% | 16468.1 |

Children’s Place | 11.4% | 2077.5 |

Ross Stores | 16.8% | 33685.3 |

TJX Companies | 13.0% | 60932.3 |

Urban Outfitters | 11.3% | 4872.1 |

- Overall, we note that the margins are not too high in apparel sector, ranging from 10-15% on an average.
- Lululemon Athletica has the highest margin in this group at 23.5%, while the lowest was that of Guess at 5.5%

#### Automobile Industry

Below is the list of top companies in the Apparel Sector along with their margins and Market Capitalization

Name | EBITDA Margin (TTM) | Market Cap ($ million) |

Ford Motor | 5.1% | 39538 |

Fiat Chrysler Automobiles | 10.8% | 33783 |

General Motors | 16.3% | 51667 |

Honda Motor Co | 12.0% | 53175 |

Ferrari | 32.4% | 30932 |

Toyota Motor | 14.9% | 192624 |

Tesla | -3.4% | 59350 |

Tata Motors | 10.8% | 12904 |

- We note that Tesla is unprofitable at the EBITDA Level and its margin is at -3.4%
- Ferrari, on the other hand, is the most profitable with a margin of 32.4$
- Other auto manufacturers have margin in the range of 10-15% on an average

#### Discount Stores

Below is the list of top companies in the Discount Stores along with their margins and Market Capitalization

Name | EBITDA Margin (TTM) | Market Cap ($ million) |

Big Lots | 7.4% | 1823 |

Burlington Stores | 11.4% | 10525 |

Costco Wholesale | 4.3% | 96984 |

Dollar General | 10.2% | 26296 |

Dollar Tree Stores | 11.7% | 21557 |

Ollie’s Bargain Outlet | 14.0% | 4330 |

Pricesmart | 5.8% | 2496 |

Target | 9.2% | 43056 |

Walmart | 5.2% | 261917 |

- We note that Walmart has the lowest Margin of 5.2% in this group
- Ollie’s Bargain Outlet, on the other hand, has the highest Margin of 14.0%
- In general (as expected) discounted stores operate at relatively lower margin levels as compared to the other sectors.

#### Oil & Gas

Below is the list of top companies in the Oil & Gas E&P along with their margins and Market Capitalization

Name | EBITDA Margin (TTM) | Market Cap ($ million) |

Diamond Offshore Drilling | 24.0% | 2544 |

Ensco | 14.0% | 3234 |

Helmerich & Payne | 24.8% | 6656 |

Nabors Industries | 18.7% | 2366 |

Noble Corp | 25.9% | 1444 |

Ocean Rig UDW | 24.3% | 2536 |

Patterson-UTI Energy | 23.7% | 3683 |

Rowan Companies | 41.6% | 1736 |

Transocean | -40.5% | 5917 |

Unit | 39.1% | 1293 |

- We note that the Margins of these oil and gas companies is generally higher at an average of 25-30%.
- Transocean is making losses with a Margin of -40.5%
- Rowan Companies is the best in the lot with a Margin of 41.6%

### EBITDA Margin Video

### Recommended Articles

This has been a guide to what is EBITDA Margins. Here we look at EBITDA Margin Formula along with examples and calculate EBITDA margins for Starbucks and Colgate. Also, we see why the this is important along with its drawbacks. In addition, we look at EBITDA margin of industries like discount stores, oil & gas companies, automobiles and apparel companies. You can learn more about Ratio analysis here –

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