In true eli5 way, please can someone explain the difference between Revenu and EBITDA, and, when you would want to use/assess one rather than the other.
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Revenue: How much money you bring in, in sales. If you sell 100 cupcakes for $5 each you have $500 in Revenue. Revenue just tells you your total sales.
Gross Margin: Your revenue less direct costs of the product. So if you pay $2 in ingredients per cupcake and paid your brother $25 per hour for two hours to help you bake your GM is $500 – 100 * $2 – $25 *2= $250. Gross Margin tells you how efficient you are actually making your product.
EBITDA: Your gross Margin less overhead costs. So if you used $100 of electricity, and $20 to make your flyers for your cupcake business and paid your sister $30 to hang the posters your EBITDA is $250 – $20 – $30 = $200. EBITDA says how profitable the company is fundamentally doing what it’s normally supposed to do.
Net Income: Your EBITDA less Taxes, Depreciation and Interest. If you spent $500 setting up your cupcake stand and you think you will use it for 5 years your Depreciation is $100 per year. If you borrowed $500 to set everything up and have to 10% your interest is $50. So your Net Income is $200-$100-$50 = $50. Net income is how much the business actually made.
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