Markets Glossary
EBITDA Margin
Earnings before interest, tax, depreciation and amortisation as a percentage of revenue — a measure of core operating profitability.
By Amit Tyagi, Fitoor Capital · AletheiaAI Glossary
Definition
EBITDA margin is EBITDA divided by revenue. It strips out financing costs (interest), tax, and non-cash charges (depreciation and amortisation) to show how profitable the underlying operations are before capital structure and accounting policies enter the picture.
It is useful for comparing operating efficiency across companies with different debt levels — but it is not cash flow. A company can post a healthy EBITDA margin while cash is stuck in receivables or consumed by heavy capital expenditure that depreciation only partially reflects.
India Context
Under Ind AS 116, lease rentals largely moved out of operating expenses and into depreciation and finance cost — which mechanically inflated reported EBITDA for lease-heavy Indian businesses like retail, aviation and QSR after 2019. When comparing margins across years or against pre-2019 history, check whether the company discloses pre-Ind AS 116 numbers. Indian companies also frequently headline “adjusted EBITDA”; the adjustments are worth reading line by line in the results presentation.
Example
A retailer reports revenue of ₹1,000 crore and EBITDA of ₹150 crore — a 15% EBITDA margin. Of that, roughly ₹40 crore reflects lease costs reclassified under Ind AS 116 rather than operating improvement. The comparable pre-Ind AS 116 margin is nearer 11% — a materially different efficiency picture.
Frequently Asked Questions
Is EBITDA the same as cash flow?
No. EBITDA ignores working-capital movements, capex, interest, and tax — all real cash items. Cash flow from operations in the cash flow statement is the harder number.
Why do companies report adjusted EBITDA?
To exclude items management considers one-off — ESOP costs, restructuring, forex. Sometimes legitimate, sometimes a way to dress up recurring costs. The reconciliation table in the filing shows which.
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