Glossary
EBITDA
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation. It is a widely used measure of a company’s core operating profitability, stripped of the effects of financing decisions, tax environments, and non-cash accounting charges. Lenders, investors, and supply chain finance platforms use EBITDA to assess a business’s financial health and creditworthiness.
What It Is
EBITDA removes variables that can obscure a company’s underlying operational performance. A business with heavy debt (high interest), operating in a high-tax jurisdiction, or carrying significant fixed assets (high depreciation) might show a low net profit, but strong EBITDA. This makes it a more comparable metric across different businesses, industries, and geographies.
In supply chain finance, EBITDA matters because it informs credit decisions. Buyers with strong EBITDA can anchor better financing rates for their suppliers. Suppliers with growing EBITDA demonstrate the health that supports higher credit limits.
The Formula
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortisation
Or, starting from operating profit:
EBITDA = Operating Profit (EBIT) + Depreciation + Amortisation
EBITDA Margin
EBITDA margin expresses EBITDA as a percentage of revenue, enabling comparison across company sizes:
EBITDA Margin = (EBITDA / Revenue) × 100
Under 10%: low, tight operations, limited buffer.
10–20%: moderate, typical for manufacturing and retail.
20–35%: strong, common in technology and pharma.
35%+: very strong, platform businesses, high-margin services.
Why EBITDA Matters in Supply Chain Finance
Credit pricing: buyers with higher EBITDA and stronger credit profiles anchor lower discount rates for suppliers in reverse factoring programs
Risk assessment: lenders evaluate EBITDA trends to assess buyer payment reliability
Loan-to-value decisions: asset-based lending and credit limit setting often reference EBITDA multiples
Investor communication: businesses using SCF to optimise working capital can point to improved EBITDA margins from lower financing costs
Limitations of EBITDA
EBITDA is useful but not complete. It excludes capital expenditure, changes in working capital, and actual cash generation.