If Company A has an EV/Revenue ratio of 2x and an EV/EBITDA of 10x, while Company B has a 2x EV/Revenue and 8x EV/EBITDA, which company has the higher EBITDA margin?

To determine which company has the higher EBITDA margin, we need to understand how the EV/Revenue and EV/EBITDA ratios relate to EBITDA margin.

The EV/Revenue ratio indicates how much an investor is willing to pay for each dollar of revenue generated by the company, while the EV/EBITDA ratio indicates how much an investor is willing to pay for each dollar of EBITDA. The EBITDA margin, which is calculated as EBITDA divided by revenue, reflects how efficiently a company converts revenue into EBITDA.

For both companies, the EV/Revenue is the same at 2x. Therefore, the key comparison point is the EV/EBITDA ratio. Company A has an EV/EBITDA of 10x, and Company B has an EV/EBITDA of 8x.

To find the EBITDA margin, we can rearrange the associated formulas:

• For Company A:

• Revenue = EV / EV/Revenue = EV / 2

• EBITDA = EV / EV/EBITDA = EV / 10

• EBITDA Margin = EBITDA / Revenue = (EV / 10) / (EV / 2) = 2/10 = 0.2 or 20%.