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In accounting, as part of financial statements analysis, economic value added is an estimate of a firm's economic profit, or the value created in excess of the required return of the company's shareholders.
A company's earnings before interest, taxes, depreciation, and amortization (commonly abbreviated EBITDA, [1] pronounced / ˈ iː b ɪ t d ɑː,-b ə-, ˈ ɛ-/ [2]) is a measure of a company's profitability of the operating business only, thus before any effects of indebtedness, state-mandated payments, and costs required to maintain its asset base.
It is opposed to net income, defined as the gross income minus taxes and other deductions (e.g., mandatory pension contributions). For a business, gross income (also gross profit , sales profit , or credit sales ) is the difference between revenue and the cost of making a product or providing a service, before deducting overheads , payroll ...
A professional investor contemplating a change to the capital structure of a firm (e.g., through a leveraged buyout) first evaluates a firm's fundamental earnings potential (reflected by earnings before interest, taxes, depreciation and amortization and EBIT), and then determines the optimal use of debt versus equity (equity value).
To verify a margin (%): Cost as % of sales = 100% − Margin % "When considering multiple products with different revenues and costs, we can calculate overall margin (%) on either of two bases: Total revenue and total costs for all products, or the dollar-weighted average of the percentage margins of the different products." [1]
In business, Gross Margin Return on Inventory Investment (GMROII, also GMROI) [1] is a ratio which expresses a seller's return on each unit of currency spent on inventory.It is one way to determine how profitable the seller's inventory is, and describes the relationship between the profit earned from total sales, and the amount invested in the inventory sold.
The COGS formula is the same across most industries, but what is included in each of the elements can vary for each. It should be calculated as: Operating Profit Margin = 100 ⋅ Operating Income Revenue {\displaystyle {\text{Operating Profit Margin}}={100\cdot {\text{Operating Income}} \over {\text{Revenue}}}}
In Cost-Volume-Profit Analysis, where it simplifies calculation of net income and, especially, break-even analysis.. Given the contribution margin, a manager can easily compute breakeven and target income sales, and make better decisions about whether to add or subtract a product line, about how to price a product or service, and about how to structure sales commissions or bonuses.