A good EBITDA margin is generally 10-20%, but it highly depends on the industry, with Tech often seeing 30-40%+ while Retail and Healthcare might be 10-20%, and Manufacturing around 15-25%. A margin above 20% is considered strong, but you must compare it to industry peers, as higher margins often signal better operational efficiency and less debt risk, while lower margins might point to operational issues.
A good EBITDA margin may fall between 15% and 25%, says Simon Thomas, Managing Director of accountancy firm Ridgefield Consulting. Generally, the higher the EBITDA margin, the greater the profitability and efficiency of a company.
A good EBITDA margin for a company depends on its industry, but generally speaking investors have a high degree of interest in companies with over 20% EBITDA margin.
For example, a 50% EBITDA margin in most industries is considered exceptionally good. If your EBITDA margin is 10%, your SaaS startup's operations may not be sustainable.
A healthy profit margin varies by industry, but 30% or higher is a good benchmark. Factors like your pricing strategy, job costing, seasonal demand, operating expenses, service offerings, customer base, and overall market conditions will also influence your margins. Monitor and adjust to improve margins.
The Revenue Multiple (times revenue) Method
A venture that earns $1 million per year in revenue, for example, could have a multiple of 2 or 3 applied to it, resulting in a $2 or $3 million valuation. Another business might earn just $500,000 per year and earn a multiple of 0.5, yielding a valuation of $250,000.
A 40% profit margin is generally considered excellent in most industries. However, what's considered good varies widely by sector—some industries operate with much lower margins while others, like certain tech sectors, may aim for higher profitability.
People try to dress up financial statements with it.” “We won't buy into companies where someone's talking about EBITDA. If you look at all companies, and split them into companies that use EBITDA as a metric and those that don't, I suspect you'll find a lot more fraud in the former group.
The Rule of 40 SaaS states that the sum of a healthy SaaS company's annual recurring revenue growth rate and its EBITDA margin should be equal to or exceed 40%. It is a measure of how well a SaaS balances growth with profitability.
A negative EBITDA margin signals that the company's core business operations are unprofitable, and it is losing money at an operational level before accounting for interest, taxes, depreciation and amortisation. This is a major red flag for any business.
This preference reflects his belief that understanding the core earnings power of a business is crucial for making informed investment decisions. In summary, Buffett's preference for EBIT over EBITDA is grounded in his commitment to value investing and understanding a company's true profitability.
EBITDA and gross profit measure profit in different ways. Gross profit is the profit a company makes after subtracting the costs associated with making its products or providing its services, while EBITDA shows earnings before interest, taxes, depreciation, and amortization.
EBITDA can misleadingly present unprofitable firms as financially healthy by omitting certain expenses. Critics argue that EBITDA can be manipulated, making companies appear stronger than they are. Unlike operating cash flow, EBITDA excludes changes in working capital, potentially hiding financial troubles.
The basic rule
In the BEPS Action 4 report, the OECD/G20 recommended that jurisdictions impose a cap on deductions for interest and amounts economically equivalent to interest, which should be set at between 10% and 30% of earnings before interest, taxation, depreciation and amortisation (EBITDA).
EBITDA – The primary measure of cash flow used to value mid to large-sized businesses and does not include the owner's salary as an adjustment.
A 30% EBITDA margin means a company makes a profit of $0.30 for every $1 of revenue it earns. This is considered a good EBITDA margin, indicating low operating expenses and high earnings potential.
40% margin = 66.7% markup.
7 times EBITDA is a valuation multiple used in financial analysis and investment assessment. It signifies valuing a company or investment at seven times its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).
The Rule of 40 is a metric for evaluating the health of a SaaS company, calculated as the sum of revenue growth rate and EBITDA margin. Generally, companies aim for a result that is above 40%.
In 1957, Buffett, in a letter to limited partners, suggested that 70% of his company's capital was invested in stocks and 30% in corporate work-outs.
In some industries, a higher EBITDA margin above 15%, may be considered favorable. A good EBITDA varies by industry, company size, industry norms, growth stage, and capital structure.
Coca-Cola's ebitda for fiscal years ending December 2020 to 2024 averaged 13.553 billion. Coca-Cola's operated at median ebitda of 13.601 billion from fiscal years ending December 2020 to 2024. Looking back at the last 5 years, Coca-Cola's ebitda peaked in September 2025 at 16.307 billion.
For example, if your service business makes $100,000 in annual profit, its estimated value might range between $200,000 and $300,000. However, if that same profit came from a technology company with rapid growth, it might be worth $600,000 to $1 million.
As a rule of thumb, 5% is a low margin, 10% is a healthy margin, and 20% is a high margin.