EBITDA to sales ratio

AAA

DEFINITION of 'EBITDA to sales ratio'

A financial metric used to assess a company's profitability by comparing its revenue with earnings. More specifically, since EBITDA is derived from revenue, this metric would indicate the percentage of a company is remaining after operating expenses.

Sometimes referred to as "EBITDA margin".

Calculated as:

EBITDA to sales ratio

INVESTOPEDIA EXPLAINS 'EBITDA to sales ratio'

For example, if XYZ Corp's EBITDA is $1 billion and its revenue is $10 billion, then its EBITDA to sales ratio is 10%. Generally, a higher value is appreciated for this ratio as that would indicate that the company is able to keep its earnings at a good level via efficient processes that have kept certain expenses low.

However, when comparing company's EBITDA margin, make sure that the companies are in related industries as different size companies in different industries are bound to have different cost structures, which could make comparisons irrelevant.

RELATED TERMS
  1. Revenue

    The amount of money that a company actually receives during a ...
  2. Operating Margin

    A ratio used to measure a company's pricing strategy and operating ...
  3. Earnings Before Interest, Taxes, ...

    An indicator of a company's financial performance which is calculated ...
  4. Operating Expense

    A category of expenditure that a business incurs as a result ...
  5. Cost Of Goods Sold - COGS

    The direct costs attributable to the production of the goods ...
  6. Investment Income Ratio

    The ratio of an insurance company’s net investment income to ...
Related Articles
  1. Fundamental Analysis

    Ratio Analysis Tutorial

    If you don't know how to evaluate a company's present performance and its possible future performance, you need to learn how to analyze ratios.
  2. Investing Basics

    Analyze Investments Quickly With Ratios

    Make informed decisions about your investments with these easy equations.
  3. Markets

    A Clear Look At EBITDA

    This measure has its benefits, but it can also present earnings through rose-colored glasses.
  4. Markets

    A Look At Corporate Profit Margins

    Take a deeper look at a company's profitability with the help of profit margin ratios.
  5. Options & Futures

    EBITDA: Challenging The Calculation

    This measure has a bad rap, but it's still a valuable tool when used appropriately.
  6. Mutual Funds & ETFs

    Morningstar's Stewardship Grade Scores Big

    Morningstar's service gives investors an idea how well fund companies are safeguarding their interests.
  7. Investing

    Take Control With Investing Absolutes

    Uncover the three things most good stocks have in common: performance, profitability and value.
  8. Economics

    Bulk Shipping Companies Struggle As Markets Soften

    The "soft" dry bulk shipping market that confronts shipping companies is a result of lower demand from China, and an excessive amount of bulk ships.
  9. Economics

    Effects of OIS Discounting for Derivative Traders

    The use of OIS discounting has important implications for derivative valuations and could positively or negatively impact a trader's profit or loss.
  10. Investing

    Can You Bank on BofA in 2015 (and Beyond)?

    An in-depth look at BofA, one of the most widely-traded stocks on Wall Street.

You May Also Like

Hot Definitions
  1. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  2. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  3. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  4. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  5. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
  6. Currency Carry Trade

    A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase ...
Trading Center