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EBITDA Margin | Formula | Calculation and Examples - YouTube
Channel: WallStreetMojo
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hello everyone hi welcome to the channel
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clicking the bell icon friends today we are going to learn a concept that is EBITDA
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margin
EBITDA one of the important driver
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which is used in valuation purpose that
is EV/EBITDA ratio
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this is one of the most important ratio
which is which investors stakeholders
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investment bankers they use to analyze a
company EV/EBITDA one really
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big ratio so if we need to understand
what is EBITDA margin now we have
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this graph over here but before that
let's understand first what is a EBITDA
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margin and then come back to this graph
see a EBITDA of margin is basically
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profitability ratio okay this is a
profitability ratio that calculates at
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how much EBITDA that is earning before
interest tax depreciation and
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amortization is generated as a
percentage of sales
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yeah so this is basically the
interpretation part of what exactly is
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your EBITDA Margin now if it is found
after deducting the operating expenses
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like cost of good Sold there is a COGS
general and admin cost etc from the
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total sales C you need to know that it
should exclude any sort of depreciation
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and amortization and from here we note
that from the graph of the EBITDA Margin
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of Facebook Apple and Google Facebook
margin is currently around a 52% and has
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been consistently higher than Apple and
Google's margin this implies that 48% of
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the revenue is the of the revenue is
your operating expenses over here in
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this particular scenario apples margin
has been in around 30 to 35% so
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rest has to be the operating profit or
operating expenses and in case of Google
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Google margin has been in the range of
30 to 32% the closing of that
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there was a sharp decline over here well
historically however in its most recent
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quarter it reported at lower EBITDA of
margin of 19.46 so
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what exactly how do they calculate this
a EBITDA Margin is equal to your
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operating
income plus any depreciation plus any
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amortization so to calculate the EBITDA
Ratio you you can use the above formula
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okay and we'll drill down on the term a
EBITDA Margin in the following components
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the EBI okay over here is equal to your
Earning before your interest
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expense okay so this is going to be your
EBI then your t is your taxes then the
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next is B which is your depreciation and
a is your amortization now EBITDA
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margin calculation of of one company
let's see the EBITDA margin calculation
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of Starbucks
but this is on the screen if you can see
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this is the screenshot of the income
statement in this snapshot of Starbucks
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Corp and we note that the earning before
interest tax depreciation and
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amortization is not directly provided in
the income statement see the net revenue
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depreciation and operate income so it's
not directly provided over here so how
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we are supposed to do this seem 2017 if
you see this is it a 2017 case I'm
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talking about the EBITDA for 2017 is
going to be your 4134.7
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you need to add
back any depreciation and amortization
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which is 1011.4
that will give you a 5146. 1 million
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and EBITDA Margin
margin formula is going to be your
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Ebitda that is a 5146.1
divided by your sales which is
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23386 so let's try and evaluate
this yeah it's 5146 it is
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is equal to 5146.1
million
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and our net sales is 22.386
so let's just divide EBITDA divide by
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that sales which we receive 22 or 23%
22.98 for 2017 in the similar
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fashion we can look for 2016 s data the
EBITDA for 2016 is 4171 this was
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for 2017 this is for 2016 so we'll add
things as 4171.9
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9 plus we need to add the
depreciation and amortization 980.9
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so we'll get our EBITDA 5152
and our net sales is twenty one three
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one five point nine three one nine point
five so let's we just don't need to
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calculate control-r when receive twenty
four person and for 2015 let's calculate
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the same 3601 ,3601
one plus we need to
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893.9 as your
amortization and let's take the sales
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figure as 15 sorry 19162
just copied on the formula we get 23 so
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23 to 24 are gonna again again back to
23% so in this fashion we have
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calculated till 2015 all the margins
right for this this this is basically
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the Starbucks Corp consolidated
statement of earnings got it so I hope
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you have got a real idea about how the
formula is calculated from a real-life
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example that we evaluated and not
something that was hypothetical now
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let's understand why EBITDA now margin is important
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see considered first it is considered to
be the cash operating a profit margin
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this is the first and the foremost
region the reason behind this it is
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basically you can see a cash operating
margin that does not include include the
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effect of any capital structure base as
well as any non-cash item you can say so
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like that depreciation and amortisation
second it provides us with the measure
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of how much the cash of the company is
is generating per unit of revenue you
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know however the cash flow from the
operations per unit revenue can be more
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precise in in this context second you
need to remove something from here is
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the non operating effects if any
so the EBITDA margin calculation
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basically removes any non-operating
effects that are unique to each other to
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each company's like for example if you
compare companies in the oil and the gas
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sector
each company may follow a different
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depreciation or modernization policies
like SLM and we have wdv and so on and
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so forth
now the third important thing EBITDA
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removes all the all these non-operating
effect non-operative effects
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and also helps to make a company
comparison much better for two companies
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forth it is also useful for for a year
over year comparison or your two or it's
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called YT y2y comparison that is your
ear to your comparison analysis now what
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exactly are the drawbacks for this
particular case see first then the
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foremost thing window dressing can be
done over here
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window dressing can be is very much
possible see comparison companies with
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low profit margin may try to window
dress their margin figures by
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highlighting the EBITDA Margin instead
of the net profit margin second EBITDA
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is basically a non-gaap measure okay
since a pizza is a non-gaap measure and
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is not regulated some companies may use it to portray a Rosy financial
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statement or situation of of company and
it can be incorrectly in correctly
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applied okay this is one bad bad thing
it can be incorrectly applied to the
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margin should be should not be used but
to come me to compare the companies with
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a high debt capitalization as their
interest expense will be very high and a
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EBITDA of margins will not capture those
the amount of the debt so and also if
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you compare the two companies from one
with a low debt capitalization and other
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one with high debt capitalization the
finding made only to the correct uh
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conclusion now this is the list or I'm
showing you of oil and gas company this
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is a list of the top companies in the
oil and gas gas sector along with their
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margins and market capitalization they
epitda in the market cap so over here
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we note that the margin of these of
these oil and gas companies is generally
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higher in the range of 25 to 30%
as you can see and the Trans ocean has
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the negative margin it's making
tremendous amount of losses and Rowin
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companies is basically
making the highest amount of the profit
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is the best in the lot with the margin
of 41.6 so that's it for this
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particular topic if you have learned and
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