Definition: EBITDA margin, or earnings before interest, taxes, depreciation, and amortization margin is a measure of a company's operating profit as a percentage of its revenue. EBITDA margin = (earnings before interest and tax + depreciation + amortization) / total revenue. It measures a company’s profitability and allows you to compare the company’s real performance (stripping out capital investments) with others in the industry. It is a good measure of a company's ability to cut costs and operate efficiently.

In Plain English: EBITDA margin is EBITDA divided by revenue. How much profit does the company generate per dollar of revenue?

Example: If you sold two pairs of shoes for $100 each your revenue would be $200. Less your cost of goods sold (what it took to make the shoes) $40 per pair = $40+$40=$80, and minus your operating expenses (what it takes to run the business) say $50 you end up with your EBITDA = $200-$80-$50 = $70. EBITDA margin is EBITDA/Revenue, in this example $70 / $200 = 0.35 or 35%

EBITDA margin is a snapshot of your business’ operational efficiency. It doesn’t complicate things by adding in capital investment, other non-cash items and financing costs. It is helpful if you want to benchmark your company’s operating performance against other companies in the industry. It is also helpful to measure and track any improvements in operational efficiency and cost cutting.