EBITDA margin
In one sentenceEarnings before interest, taxes, depreciation, and amortization divided by net sales, showing what operations generate from every riyal of sales before depreciation and financing.
Simply put
It is useful when comparing businesses in the same industry that differ in how they are financed or in the age of their assets, because depreciation and financing cost are excluded.
But depreciation is a real cost in the long run: the equipment will be replaced one day, so do not judge a business's profitability by the EBITDA margin alone.
Worked example
A restaurant has annual sales of 2,000,000 SAR, and earnings before interest, taxes, depreciation, and amortization of 300,000 SAR.
EBITDA300,000 SAR
Net sales2,000,000 SAR
Margin = 300,000 ÷ 2,000,00015%
Formula: EBITDA ÷ net sales × 100
Don't confuse it with
Operating profit marginThe operating margin is calculated after deducting depreciation and amortization, so it is always less than or equal to the EBITDA margin.