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What is EBITDA,EBITDA Margins and its importance in Business Plan?
The definition goes by Earnings before Income Tax, Depreciation & Amortization. These words will ring in bells especially if you are from technology back ground, in lay man terms it is just total expenses minus total revenues is what is called as EBITDA
Let’s understand its importance in Business plan, for any business the baseline are very important, this is the first indicator of your viability for the business you are planning or it is also the first indicator to give you indication is you strategy going in correct direction or not.
Whether it is start up or existing firm the EBITDA gives indications to the management is it working smartly or going hay wire. We all know that any Business has to generate revenues it is to be called business, so this helps in knowing is your revenue growing or is it getting eaten by the expenses that are occurring.
This show’s is the company growing or going in the red zone, the same is conveyed by the EBITDA margins, these margins are derived in a simplest method all you need to do is divide the revenue by the balance you get by subtracting Expenditures Minus Revenues.Ebitda margins help you in understanding how good is the revenue growing over the expenditures this helps you in maximizing the revenues and minimizing the expenditures. This helps you to take steps to increase productivity which increases revenues.Also this helps in reducing your expenditures either on operating cost or minimum selling price or checking whether you are over staffed this gives clear directions as where your profits are getting eaten upAny company future depends on EBITDA and its Margins.