So, with the goal of sharing important information about many concepts related to Fundamental Analysis and Technical Analysis, I have come up with a separate series of blogs called "What is _______?" blogs. In these blogs, I will try to explain as many concepts as possible from both Fundamental Analysis and Technical Analysis.

So, Let’s begin by understanding the very first concept of this series: "What is EBITDA Margin?"

But before I dive into it, let me answer the question, "What is EBITDA?"

EBITDA stands for Earnings Before Interest Tax Depreciation and Amortization. It is a way to measure how much profit a company makes from its operations. EBITDA is calculated as follows:

EBITDA = Net Profit + Total Tax Expense + Finance Cost (Interest) + Depreciation and Amortization

However, EBITDA only shows a company's earnings and not how profitable it is. That is where EBITDA Margin comes in. It reveals the company's operational level of profitability. In fundamental analysis, a company’s EBITDA Margin is compared with its past periods' EBITDA Margin and with its competitors' EBITDA Margins.

Now, you might be wondering why I am explaining EBITDA before EBITDA Margin. Think of it like watching a movie series – you usually watch the first part before the second part. Here, EBITDA is the first part, and EBITDA Margin is the second part.

EBITDA Margin measures how well a company turns its revenue into profit from operations. It is calculated it using the following formula:-

EBITDA Margin = EBITDA/Total Revenue earned by the company.

Now that I have explained EBITDA and EBITDA Margin, let me show you an example of how EBITDA and EBITDA Margin is calculated. Imagine a company called ABC Company Limited. I will calculate its EBITDA and EBITDA Margin from its profit and loss statement given below:-

Here,

EBITDA = Profit after Tax + Tax Expenses + Finance Cost + Depreciation and Amortization

EBITDA = 27,000 + 3,000 + 100,0000 + 90,000

EBITDA = 220,000

And,

EBITDA Margin = EBITDA/Total Income

EBITDA Margin = 220,000/700,000 = 0.3142 or 31.42%

You can compare this EBITDA Margin with ABC Company's past margins to see if it is improving or declining. You can also compare it with other companies, like XYZ Co Limited, to judge its operating profitability.

A higher margin is generally a positive indicator. If the margin is greater than its previous figures or higher than what similar companies are achieving, it is a positive sign.

EBITDA Margin also tells us how much profit a company makes from each rupee of sales. An EBITDA Margin of 31.42% for ABC Company Limited means it earns 31.42 paise in profit from every rupee of sales.

While EBITDA Margin is helpful, it also has limitations. It might not work well for companies with lots of debt, as it ignores interest expenses. Also, comparing the EBITDA Margins of companies following different accounting standards can be misleading. Lastly, EBITDA can be manipulated by a company's management. Despite these limitations, EBITDA Margin is widely used to analyze any company’s profitability.

In conclusion, we’ve embarked on a journey to unravel the intriguing world of financial analysis through our "What is _______?" series. Just like watching a captivating movie series, we are delving into the series of numerous financial concepts, which will be unveiled in my upcoming blogs. So, stay tuned for more gems of Fundamental and Technical Analysis.