Understanding the concept
What is EBITDA?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortisation. It tells you how much profit your core business operations generate — before loan interest, tax bills, or accounting write-downs. Banks, investors, and buyers all look at EBITDA first because it shows the true operating strength of a business. A healthy EBITDA margin is typically 15–25% for most Indian businesses.
EBITDA
=
Revenue − COGS − Employee Costs − Other Operating Expenses
EBITDA Margin %
=
( EBITDA ÷ Revenue ) × 100
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COGS
Direct costs of producing your product — raw materials, packaging, direct labour wages paid to factory or production staff, and inward freight to receive your inputs. Do not include rent, admin salaries, or marketing here.
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Employee Costs
All staff costs not included in direct labour above — admin, sales, management and operations salaries, plus PF contributions, ESIC, and any bonuses paid during the period.
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Operating Expenses
Everything else that keeps the business running — rent, electricity, internet, software subscriptions, marketing spend, professional fees, and any other overhead not covered above.
Important: Use either monthly OR annual figures for all inputs — but be consistent. Do not mix monthly revenue with annual expenses.