Loans
Cards
Insurance
Investment
Stock Market
Electronics Mall
CIBIL Score
Knowledge Centre
Calculators
Do not call
En
Understand EBITDA Margin vs Operating Margin to explore how each metric reflects profitability through different cost inclusions.
Understanding a company’s profitability is important for investors, analysts, and business owners. Among the most widely used profitability measures are EBITDA margin and operating margin. While both highlight how efficiently a company runs its operations, they differ in what they include or exclude — and therefore reveal different insights about financial performance.
EBITDA margin measures a company’s operating profitability before accounting for non-cash expenses, financing costs, and taxes.
It shows how much operating cash profit a business generates from its revenue.
EBITDA stands for:
Earnings
Before
Interest
Taxes
Depreciation
Amortisation
A higher EBITDA margin reflects greater operational efficiency and a larger portion of revenue converted into operating cash profit.
The formula is:
EBITDA Margin = (EBITDA ÷ Revenue) × 100
Where:
EBITDA = Operating Profit + Depreciation + Amortisation
Revenue is the total income generated from business operations.
Steps:
Start with operating profit (EBIT).
Add depreciation and amortisation.
Divide by revenue.
Multiply by 100 to convert to percentage.
Operating margin shows the percentage of revenue left after paying all operating expenses, including depreciation and amortisation.
It reflects profit after all operating costs are deducted, but before interest and taxes.
This metric captures the efficiency of day-to-day operations — production, salaries, marketing, rent, and more.
The formula is:
Operating Margin = (Operating Income ÷ Revenue) × 100
Operating income (EBIT) already includes depreciation, amortisation, and all operating expenses.
Here’s how the two margins differ across key parameters:
| Aspect | EBITDA Margin | Operating Margin |
|---|---|---|
Includes Depreciation & Amortisation |
No |
Yes |
Reflects Non-cash Costs |
Excludes |
Includes |
Measures Cash Operating Profit |
Yes |
Not fully |
Suitable for Capital-intensive Businesses |
Very useful |
Can be distorted |
For Comparing Companies |
Across industries with varying asset bases |
Within the same industry |
Sensitivity to Cost Structure |
Less sensitive |
More sensitive |
Shows Operational Efficiency |
Partially |
Strong indicator |
In short:
EBITDA margin focuses on core cash profitability.
Operating margin provides a more realistic profit picture after accounting for necessary asset costs.
EBITDA margin is always equal to or higher than operating margin because it adds back depreciation and amortisation.
For businesses with heavy investments in machinery, infrastructure, or R&D, the difference between the two can be significant.
Here’s why both metrics matter when analysing a company’s performance:
Evaluate pure operational cash earnings
Compare companies with different capital structures
Assess debt-heavy or asset-light businesses
Measure true operating efficiency
Understand how well costs are managed
Identify sustainable profitability
Both metrics together provide a complete picture of a company’s operational health.
Here’s how the two profitability metrics differ across key parameters:
Ignores essential costs like depreciation
Can overstate profitability
May be manipulated by adding back items
Can penalise capital-intensive industries
Harder to compare across diverse sectors
Depreciation methods may distort results
Suppose a company has:
Revenue: ₹100 crore
Operating Income (EBIT): ₹20 crore
Depreciation & Amortisation: ₹5 crore
EBITDA = 20 + 5 = ₹25 crore
EBITDA Margin = (25/100) × 100 = 25%
Operating Margin = (20/100) × 100 = 20%
Interpretation:
The 5% difference shows the impact of depreciation and amortisation on overall profitability.
EBITDA margin and operating margin together provide a clearer picture of a company’s operational strength. One highlights cash-driven profitability, while the other captures the full cost structure. Using them side by side helps assess performance, efficiency, and sustainability more accurately across industries and time periods.
Points to keep in mind:
EBITDA margin measures cash-based operating profitability.
Operating margin measures real profitability after all operating costs.
EBITDA margin is typically higher because it excludes depreciation and amortisation.
Using both metrics gives a complementary view of a company’s financial performance.
EBITDA margin is commonly used for cross-company comparisons, while operating margin reflects efficiency assessment.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
EBITDA margin represents the percentage of revenue remaining after covering operating expenses excluding depreciation and amortisation. It reflects the cash-based operating performance of the business.
Operating margin measures the proportion of revenue left after deducting all operating expenses, including depreciation and amortisation. It shows the profitability of core operations after accounting for non-cash operating costs.
EBITDA margin is calculated using the formula:
EBITDA ÷ Revenue × 100.
This expresses EBITDA as a percentage of total revenue.
Operating margin is calculated using the formula:
Operating Income ÷ Revenue × 100.
This shows the share of revenue converted into operating profit.
EBITDA margin excludes depreciation and amortisation, focusing on cash profitability, while operating margin includes these non-cash costs, providing a fuller view of operational performance after accounting for asset usage.
Both margins are used because they provide complementary insights: EBITDA margin highlights cash-generating ability, whereas operating margin reflects true operational efficiency after considering depreciation and amortisation. Together, they give a balanced view of profitability.
.jpeg)
80643
Unlock the world of credit! From picking the perfect card to savvy loan management, navigate wisely.
45110
Money Management and Financial Planning covers personal finance basics, setting goals, budgeting...
21798
Explore the investment cosmos! From beginner's guides to sharp-witted strategies, explore India's treasure trove of options.
34915
Navigate the tax maze with ease! Uncover Income Tax 101, demystify jargon with Terms for Beginners, and choose between Old or New Regimes.
10431
Discover essential insights on various types of insurance in India.
4421
Welcome to Tech in Finance, where we explore the exciting intersection of technology and finance...
Personal Loan, Business Loan, Collateral
Credit Score, Report & Analysis
Fixed Deposit, Mutual Fund, NPS, Demat A/C, SGB
General Insurance, Life Insurance, Term Insurance
Stocks, IPOs
Smart Phone, Speaker, EarPhone
Academy 
.jpeg "image not found")
