When sales growth reduces EBITDA?

EBIT gross profit margin growth growth analysis operating margin
Edited on Apr 10, 2021
2 Answers
454 Views
Roberto asked on Apr 10, 2021

Hello. Any framework to analyse it? What possible detailed list of elements can influence?

(edited)

Overview of answers

Upvotes
  • Upvotes
  • Date ascending
  • Date descending
Best answer
Ian
Expert
Content Creator
updated an answer on Apr 10, 2021
MBB | 100% personal interview success rate (8/8) and 95% candidate success rate | Personalized interview prep

Hi Roberto,

There are probably 3 main areas that could be influencing this.

1) Cost increases that directly led to this sales growth (i.e. new factories, increased sales team, larger marketing bucket etc.)

2) Pricing changes that drove sales. I.e we charge less for a product, earn much lower margins, drive volumes up, but lose money.

3) Product mix - we are selling a lot more of a low-margin product

I also note that you've posted a lot of questions recently. Have you considered coaching? 1-off Q&As are not the best approach to building full knowledge of the business world + casing!

(edited)

Was this answer helpful?
Roberto on Apr 10, 2021

Very very good ideas Ian. Thank you very much.

Anonymous A updated the answer on Apr 10, 2021

Hi,

Can you be more specific please? Growth of what?

Answer if it is sales growth:

You can start from the equation: EBITDA = Revenues - COGS - SG&A

If the revenues went up but EBITDA went down it means that COGS or/and SG&A went up not linearly

You can start from this equation to find ideas.

I think about:

- Increase of per-unit cost (diseconomies of scale or inflation or suppliers increased their prices)

- Large spending on sales operations to sell more (hiring more employees, advertising, increase of wages due to a new regulation)

(edited)

Was this answer helpful?
12
Roberto on Apr 10, 2021

Sorry, I mean sales growth.

Ian gave the best answer

Ian

Content Creator
MBB | 100% personal interview success rate (8/8) and 95% candidate success rate | Personalized interview prep
820
Meetings
54,512
Q&A Upvotes
163
Awards
5.0
99 Reviews