EBITDA to sales ratio

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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

BREAKING DOWN '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.

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RELATED FAQS
  1. What are the risks of relying on EBITDA margin data when making an investment?

    There are two specific risks of relying on EBITDA margin data when making an investment decision: the EBITDA margin isn't ... Read Full Answer >>
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    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  3. How can I find net margin by looking a company's financial statements?

    In finance and accounting, financial statements represent the fundamental means of analyzing a company's financial position, ... Read Full Answer >>
  4. How is the marginal cost of production used to find an optimum production level?

    The marginal cost of production can be tracked to show the optimal production level where per-unit production cost is lowest ... Read Full Answer >>
  5. What factors make it difficult to compare performance ratios between retail stocks?

    Companies that operate in the retail sector significantly differ in terms of their profitability and efficiency, making stock ... Read Full Answer >>
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    When an investor interprets the same-store sales ratio in analyzing food and beverage stocks, he looks at the monthly same-store ... Read Full Answer >>

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