EBITDA Margin: What It Is, How to Calculate It, and What It Tells You
Warren Team
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Key terms
- MarginBorrowed money from a broker to purchase securities. Amplifies both gains and losses. Requires a margin account and maintaining minimum equity levels to avoid margin calls.
- EBITDAEarnings Before Interest, Taxes, Depreciation, and Amortization, a metric used to evaluate a company's operating performance by removing the effects of financing decisions, tax strategies, and non-cash accounting charges. EBITDA provides a clearer view of a company's core operational profitability and is widely used to compare businesses across industries and capital structures. However, critics note that EBITDA can be misleading because it excludes real costs that affect a company's financial health.
- Margin CallA broker's demand for additional funds when a margin account falls below the required minimum value. If not met, the broker can sell securities to cover the shortfall.
- Profit MarginA financial metric that measures what percentage of revenue a company keeps as profit after accounting for costs and expenses. There are several types of profit margin, including gross margin, operating margin, and net margin, each measuring profitability at different levels of the business. Higher profit margins generally indicate a more efficient and financially healthy business, though acceptable margins vary significantly by industry.
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