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.
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.
Revenue is the total amount of money the company brings in. If I sell 100 widgets for $10 each, my revenue is $1000. It’s just a raw measurement of total sales.
EBITDA speaks to profitability, or how much money you actually made on that $1000. If it cost you $900 in labour and material to sell $1000 in widgets, your actual profit was only $100 and your EBITDA (profitability) was 10%. This is subject to some other things like taxes.
Revenue in a vacuum doesn’t actually tell you very much. A company can have an ‘impressive’ revenue in the millions or billions but still be losing money and running in the red.
Revenue is the total amount of money the company brings in. If I sell 100 widgets for $10 each, my revenue is $1000. It’s just a raw measurement of total sales.
EBITDA speaks to profitability, or how much money you actually made on that $1000. If it cost you $900 in labour and material to sell $1000 in widgets, your actual profit was only $100 and your EBITDA (profitability) was 10%. This is subject to some other things like taxes.
Revenue in a vacuum doesn’t actually tell you very much. A company can have an ‘impressive’ revenue in the millions or billions but still be losing money and running in the red.
Revenue is the total amount of money the company brings in. If I sell 100 widgets for $10 each, my revenue is $1000. It’s just a raw measurement of total sales.
EBITDA speaks to profitability, or how much money you actually made on that $1000. If it cost you $900 in labour and material to sell $1000 in widgets, your actual profit was only $100 and your EBITDA (profitability) was 10%. This is subject to some other things like taxes.
Revenue in a vacuum doesn’t actually tell you very much. A company can have an ‘impressive’ revenue in the millions or billions but still be losing money and running in the red.
Revenue is the money customers give you in exchange for the things you give them.
EBITDA is the amount of customer money left over after you pay for the stuff you gave your customers and the cost of being a business (except for money you have to people who loan you money, the government or spent on things that you’ll use for more than a year)
The best measure of how good a business is is taking how much money that you get from customers less the cost of everything including buying stuff to sell later less the amount of money that needs to be spent on things you’ll use over many years to keep the current activities going.
The best businesses have the ability to take some of the money left over and to buy ads or machines or set up new shops that mean more money will be left over in the future. They also are able to keep generating left over money from their existing business without other people taking their customers or forcing them to take less of their customers money for giving them the same stuff.
Revenue is the money customers give you in exchange for the things you give them.
EBITDA is the amount of customer money left over after you pay for the stuff you gave your customers and the cost of being a business (except for money you have to people who loan you money, the government or spent on things that you’ll use for more than a year)
The best measure of how good a business is is taking how much money that you get from customers less the cost of everything including buying stuff to sell later less the amount of money that needs to be spent on things you’ll use over many years to keep the current activities going.
The best businesses have the ability to take some of the money left over and to buy ads or machines or set up new shops that mean more money will be left over in the future. They also are able to keep generating left over money from their existing business without other people taking their customers or forcing them to take less of their customers money for giving them the same stuff.
Revenue is the money customers give you in exchange for the things you give them.
EBITDA is the amount of customer money left over after you pay for the stuff you gave your customers and the cost of being a business (except for money you have to people who loan you money, the government or spent on things that you’ll use for more than a year)
The best measure of how good a business is is taking how much money that you get from customers less the cost of everything including buying stuff to sell later less the amount of money that needs to be spent on things you’ll use over many years to keep the current activities going.
The best businesses have the ability to take some of the money left over and to buy ads or machines or set up new shops that mean more money will be left over in the future. They also are able to keep generating left over money from their existing business without other people taking their customers or forcing them to take less of their customers money for giving them the same stuff.
Earnings Before (you subtract) Interest, Taxes, and Amortized depreciation/expenses.
It is supposed to show you the baseline health of the business. If you have a solid EBITDA, and a lot of debt, for example, then you can usually safely assume that the business will be okay if you can shed the debt.
It’s kind of a core business measure. All of the things that are excluded are situational, and can be planned for/around. If EBITDA is good, but the business is not profitable, then fixing it is usually a matter of financial discipline and planning, rather than a flaw in the model itself.
Earnings Before (you subtract) Interest, Taxes, and Amortized depreciation/expenses.
It is supposed to show you the baseline health of the business. If you have a solid EBITDA, and a lot of debt, for example, then you can usually safely assume that the business will be okay if you can shed the debt.
It’s kind of a core business measure. All of the things that are excluded are situational, and can be planned for/around. If EBITDA is good, but the business is not profitable, then fixing it is usually a matter of financial discipline and planning, rather than a flaw in the model itself.
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