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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ELI5.
Revenue = Sales = how much money obtained by selling stuff to customers.
EBITDA = Profits = how much money obtained from sales minus how much money spent to get those sales.
Comparing revenues across companies tells how LARGE a company is. Comparing revenues across time tells how much GROWTH a company is undergoing.
EBITDA tells roughly how EFFICIENTLY or EFFECTIVELY a company is in doing business.
ELI5.
Revenue = Sales = how much money obtained by selling stuff to customers.
EBITDA = Profits = how much money obtained from sales minus how much money spent to get those sales.
Comparing revenues across companies tells how LARGE a company is. Comparing revenues across time tells how much GROWTH a company is undergoing.
EBITDA tells roughly how EFFICIENTLY or EFFECTIVELY a company is in doing business.
ELI5.
Revenue = Sales = how much money obtained by selling stuff to customers.
EBITDA = Profits = how much money obtained from sales minus how much money spent to get those sales.
Comparing revenues across companies tells how LARGE a company is. Comparing revenues across time tells how much GROWTH a company is undergoing.
EBITDA tells roughly how EFFICIENTLY or EFFECTIVELY a company is in doing business.
If you run a lemonade stand and it costs you $5 for the ingredients, that’s your material cost. If you hire someone for 2 hours running the stand and you pay them $20 for their labour (time) then your total cost is $25.
If you sell 35 glasses of lemonade for $1 each and make $35, that’s your revenue. Subtracting your cost ($25) gives you EBITDA of $10 or 28% of sales ($10 divided by $35).
Revenue tells you how “big” the business is. EBITDA tells you how profitable or efficient the business is. You can’t just look at one but need to consider both.
If you run a lemonade stand and it costs you $5 for the ingredients, that’s your material cost. If you hire someone for 2 hours running the stand and you pay them $20 for their labour (time) then your total cost is $25.
If you sell 35 glasses of lemonade for $1 each and make $35, that’s your revenue. Subtracting your cost ($25) gives you EBITDA of $10 or 28% of sales ($10 divided by $35).
Revenue tells you how “big” the business is. EBITDA tells you how profitable or efficient the business is. You can’t just look at one but need to consider both.
If you run a lemonade stand and it costs you $5 for the ingredients, that’s your material cost. If you hire someone for 2 hours running the stand and you pay them $20 for their labour (time) then your total cost is $25.
If you sell 35 glasses of lemonade for $1 each and make $35, that’s your revenue. Subtracting your cost ($25) gives you EBITDA of $10 or 28% of sales ($10 divided by $35).
Revenue tells you how “big” the business is. EBITDA tells you how profitable or efficient the business is. You can’t just look at one but need to consider both.
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.
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.
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.
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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