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Financial Ratios - Operating Profitability Ratios

The document discusses various operating profitability ratios used to measure the efficiency and profitability of a company's operations, including gross profit margin, operating profit margin, EBITDA margin, pre-tax margin, net margin, and contribution margin. These ratios are calculated using metrics such as gross profit, operating income, earnings before interest, taxes, depreciation and amortization, earnings before tax, net income, contributions, sales, and variable and fixed costs. The ratios indicate how much profit a company generates from its sales and whether its operations are profitable after accounting for various expenses.

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Bhaskar Mukherjee
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44 views

Financial Ratios - Operating Profitability Ratios

The document discusses various operating profitability ratios used to measure the efficiency and profitability of a company's operations, including gross profit margin, operating profit margin, EBITDA margin, pre-tax margin, net margin, and contribution margin. These ratios are calculated using metrics such as gross profit, operating income, earnings before interest, taxes, depreciation and amortization, earnings before tax, net income, contributions, sales, and variable and fixed costs. The ratios indicate how much profit a company generates from its sales and whether its operations are profitable after accounting for various expenses.

Uploaded by

Bhaskar Mukherjee
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Financial Ratios - Operating Profitability Ratios


Filed Under Investing Basics, Investment, Options, Portfolio Management, Stocks, Warren Buffett Operating Profitability can be divided into measurements of return on sales and return on investment. Return on Sales 1. Gross Profit Margin This shows the average amount of profit considering only sales and the cost of the items sold. This tells how much profit the product or service is making without overhead considerations. As such, it indicates the efficiency of operations as well as how products are priced. Wide variations occur from industry to industry. Formula 7.15 Gross profit margin = gross profit / net sales Gross profit = net sales - cost of goods sold 2. Operating Profit Margin This ratio indicates the profitability of current operations. This ratio does not take into account the company's capital and tax structure. Formula 7.16 Operating profit margin = operating income/net sales Where: Operating income = earnings before tax and interest from continuing operations

3. EBITDA Margin This ratio indicates the profitability of current operations. This ratio does not take into account the company's capital, non-cash expenses or tax structure. Formula 7.17 EBITDA margin = earnings before interest, tax, depreciation and amortization net sales 4. Pre-Tax Margin (EBT margin) This ratio indicates the profitability of Company's operations. This ratio does not take into account the company's tax structure. Formula 7.18 Pre-tax margin = Earning before tax/sales 5. Net Margin (Profit Margin) This ratio indicates the profitability of a company's operations. Formula 7.19 Net margin = net income/sales 6. Contribution Margin This ratio indicates how much each sale contributes to fixed expenditures. Formula 7.20 Contribution margin = contribution / sales Where: Contributions = sales - variable cost by

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28-07-2012 14:46

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