Introduction:
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and revenues are financial performance metrics for companies. The main difference between them is that revenues measure sales and other income-generating activities, while EBITDA measures the profitability of the business.
What is the difference between EBITDA and revenues:
Revenues: Revenues are considered the top line on a company’s income statement. For this reason, revenues are often referred to as the “top line.” In contrast, the “bottom line” is net income: what remains for shareholders after all expenses and obligations have been paid.
EBITDA: EBITDA is derived from net income, and the interest, taxes, depreciation, and amortization added to get EBITDA can be found in the expense section of the income statement.
Calculation:
Revenues: Revenues are the total income generated from the sale of goods and services. Revenues from one-time events and investment income are listed separately. Revenues are the first line on the income statement, and managers often refer to sales growth as “top line growth.”
Calculate EBITDA by adding interest, taxes, depreciation, and amortization to net income. EBITDA can also be calculated by adding operating income and depreciation and amortization.
What it Measures:
Revenues: Revenues measure sales activities and can reflect how successful the company is in the market. Revenue growth measures how sales increase or decrease over time – it can be used as a benchmark against other companies or as a measure for sales and marketing campaigns. Additionally, revenues can be used for product initiatives, new business lines, and the strategic plan of the company.
EBITDA: It measures profitability and potential. Since interest, taxes, depreciation, and amortization are outside the control of operational management, adding these items to net income is a better way to measure how well the business management is doing.
Accounting Standards:
The Financial Accounting Standards Board (FASB) is widely recognized as an authority that publishes rules and standards for Generally Accepted Accounting Principles (GAAP). Revenues are reported on the income statement according to GAAP and FASB standards, but not EBITDA.
What it Means for Investors:
Because EBITDA adds factors outside the company’s control, you get a picture of the company’s income based on factors it can influence, such as infrastructure costs, salaries, and research and development. Thus, EBITDA helps you understand whether the company is managing well.
EBITDA Multiples:
In addition to giving you a general idea of how well the company is operating, you can use EBITDA for calculations called “multiples.” Investors use multiples to evaluate company stock prices and compare the company to its competitors, its industry, and the market.
EBITDA multiples are a widely used benchmark for evaluating businesses based on a measure of profitability and potential. Known as “Enterprise Value to EBITDA” (EV/EBITDA) multiple, it measures market capitalization plus debt minus cash against EBITDA.
Revenue Multiples:
Revenue multiples, on the other hand, value the company based on the revenues it generates. Revenue multiples can be used for startups and early-stage companies that may not be profitable or show losses. Investors may also look at revenue multiples because revenues are not significantly affected by accounting decisions.
Revenue multiples measure the market capitalization against sales. The sales price is useful for cyclical companies that are very sensitive to the business cycle. Sales pricing should be used to compare companies within the same industry as profit margins are similar.
The EV-to-sales multiple is a bit more complex than the sales price. Add market capitalization and debt, then subtract cash from sales. Then divide this total by revenues. This multiple distinguishes between companies carrying high debt and interest burdens and those that do not.
Conclusion:
EBITDA
Revenue and EBITDA are two key metrics that individuals and companies use to evaluate businesses, and there are clear differences between the two. EBITDA measures profit and potential, while revenue measures sales activity. Revenue is a GAAP measure, while EBITDA is a non-GAAP measure. EBITDA multiples take into account the company’s value and EBITDA, while revenue multiples account for both the relationship between market capitalization and sales and the relationship between the company’s value and sales.
Source: https://www.thebalancemoney.com/ebitda-vs-revenue-whats-the-difference-5211201
.lwrp .lwrp-list-item .lwrp-list-link .lwrp-list-link-title-text,
.lwrp .lwrp-list-item .lwrp-list-no-posts-message{
}@media screen and (max-width: 480px) {
.lwrp.link-whisper-related-posts{
}
.lwrp .lwrp-title{
}.lwrp .lwrp-description{
}
.lwrp .lwrp-list-multi-container{
flex-direction: column;
}
.lwrp .lwrp-list-multi-container ul.lwrp-list{
margin-top: 0px;
margin-bottom: 0px;
padding-top: 0px;
padding-bottom: 0px;
}
.lwrp .lwrp-list-double,
.lwrp .lwrp-list-triple{
width: 100%;
}
.lwrp .lwrp-list-row-container{
justify-content: initial;
flex-direction: column;
}
.lwrp .lwrp-list-row-container .lwrp-list-item{
width: 100%;
}
.lwrp .lwrp-list-item:not(.lwrp-no-posts-message-item){
}
.lwrp .lwrp-list-item .lwrp-list-link .lwrp-list-link-title-text,
.lwrp .lwrp-list-item .lwrp-list-no-posts-message{
};
}
Leave a Reply