- Effective and straightforward model for illustrating individual factors that impact EBITDA.
- Easily depicts components of overall profitability such that both experts and novices comprehend the narrative of the data.
- Encourages analysis and examination of why and how EBITDA has changed.
What is an EBITDA Bridge?
An EBITDA bridge is frequently used by investment bankers when they present a company to potential PE buyers. It is most commonly used as a historical summary or a forecast of the company’s EBITDA margins.
The ‘bridge’ model refers to the comparison between the actual profit and loss over the period and the anticipated margins projected by the finance team. Calculating the deviation is mathematically straightforward and the easiest part of building the bridge model. It is much harder to figure out why the deviation exists. For this purpose, the EBITDA bridge is an excellent exercise for any finance team.
The form of the EBITDA bridge varies depending on what the finance team is hoping to evaluate in the chosen period and the level of detail required to accurately express the growth of the company. Whichever form you chose should then remain consistent from one period to the next. Needlessly changing the format will cause confusion and distract your audience from drawing parallels and comparisons over time.
Executive teams love EBITDA bridges because they analyze why differences exist between the projections and reality. In general, the CFO uses the EBITDA bridge as an executive summary of the top items that need attention within the company. They then use this model to create a narrative around the numbers they report to the board.
The EBITDA bridge can be built from year-over-year values or year-to-date values. A comparison of the two may even be useful to fully analyze the quarter against the overall profit. The bridge model also outlines the costs of sales and costs of goods based on one to two years of revenue costs. Calculations often include revenue growth, gross profit, operating expense, and EBITDA margins.
The bridge should be constructed with attention to detail such that analysis can be quickly achieved by...