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. Operating Margin

    A ratio used to measure a company's pricing strategy and operating ...
  2. Revenue

    The amount of money that a company actually receives during a ...
  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 FAQS
  1. How much of the profitability in the Internet sector is concentrated in the few major ...

    Outside of any limiting, narrow interpretations concerning what constitutes the Internet sector, there is very little industry ... Read Full Answer >>
  2. What are some of the advantages and disadvantages of DuPont Analysis?

    DuPont analysis is a potentially helpful tool for analysis that investors can use to make more informed choices regarding ... Read Full Answer >>
  3. What does break-even analysis tell a business about its shutdown point?

    Break-even analysis tells a company how many months it has left to operate based on the amount of expected cash flow and ... Read Full Answer >>
  4. How does a company determine the right level of sales volume?

    A company determines the right level of sales volume by conducting a cost-volume-profit analysis. This helps a company figure ... Read Full Answer >>
  5. To what extent has global competition affected the profitability of U.S. car manufacturers?

    Global competition resulted in less market share for U.S. car manufacturers and threatened company profits as more foreign ... Read Full Answer >>
  6. What is considered a healthy operating profit margin?

    Generally speaking, an operating profit margin of approximately 25% or better is considered favorable by most market analysts. ... Read Full Answer >>
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. Investing

    Why Cash Management Is Key To Business Success

    Businesses need to generate a healthy cash flow to survive, but not hold too much so that inventory suffers or investment opportunities are missed.
  9. Economics

    What is Net Margin?

    The ratio of net profits to revenues for a company that shows how much of each dollar earned by the company is translated into profits.
  10. Active Trading Fundamentals

    How To Avoid The 5 Most Dangerous Market Scenarios

    Recognizing the five most dangerous market scenarios can save a fortune in avoidable losses, setting the stage for long term success.

You May Also Like

Hot Definitions
  1. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  2. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  3. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  4. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  5. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  6. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
Trading Center