Question

why EBITDA is a good measurement proxy ?

Answer 1

EBITDA - Earnings before interest and tax depreciation and amortization.

It is basically done to calculate operational efficiency.

Basic formula

( operating revenue - operating expense)

Operating revenue = Total revenue - other incomes

Operating expense = total expense - finance cost - depreciation and amortization.

It is a good measurement proxy because it acts as a measurement to value the operation effectiveness before interest taxes depreciation and amortization.

For example) if a company earns $ 100 from a sale EBITDA margin shows the profit that firm has earned from the sale before interest tax depreciation and amortization.

EBITDA MARGIN = EBITDA ÷ OPERATING REVENUE