EBITDA divided by revenue; a margin measure that ignores capital intensity, useful for comparing leveraged or asset-heavy companies.
Because it adds back depreciation-accounting, EBITDA margin flatters capital-intensive businesses relative to asset-light ones. A cable operator and a software firm can show the same EBITDA margin while the cable operator must reinvest most of it.
Its legitimate use is comparing operators within the same capital intensity, and feeding leverage covenants. Pair it with capex as a percentage of revenue and the picture becomes honest again.
Example: Northwind Tools reports $195M of EBITDA on $840M, a 23.2% margin. After $75M of capex, the cash margin is closer to 14.3%, which is the operating margin again.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
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