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 is the number of goods sold multiplied by the sale price of those goods. You sell 100 widgets at $10 each, you have $1000 in revenue.
EBITDA is earnings before interest, tax, deprecation and amortisation. This is used as a proxy for operating profit because it takes revenue and subtracts the costs of running the business. So continuing from the example above, you have $1000 in revenue. Widgets cost you $5 each to produce so your “cost of goods sold” is $500, then your other expenses including rent for your widget factory and employee salaries is $250. Your total running expenses are $750, so your EBITDA is $250 as it is your revenue minus expenses (very simply in this example).
Revenue is useful because it shows how good the company is at selling its product, it’s the “top line” of the income statement, and as mentioned does not account for any costs.
EBITDA is more of a profit measure ie what is available for those that provide the business with capital.
From EBITDA interest would be subtracted (to pay debt holders that have lent money to the business), and then taxes are paid. After all of that (assuming no deprecation or amortisation of assets here for simplicity, but these are balancing items in any case), you get to “net profit after tax or NPAT” which is what is available to equity holders ie the business owners. This money can be paid out as dividends or reinvested in new assets etc.
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