Profitability Flashcards
Profit Margin
%. Used to review financial performance and can be used to compare financial performance within the same industry (as different industries often have varying business models).
Profit Margin = Net income / Revenue
Profit
$. Money made after accounting for expenses.
Profit = Revenue - Expenses
=(Price • Qty Sold) - (Variable + Fixed costs)
=(Price • Qty Sold) - [(Cost/Unit • Qty Made) + Fixed Costs]
Revenue
$. Revenue = Price • Quantity
Rev1 = P1 • Q1
Rev2= P2 • Q2
How do you calculate Net Percentage Change in Revenue (given 2 data points only)?
Net Percentage Growth =
(%Growth 1) + (%Growth 2) + (%Growth 1 • %Growth 2)
Aka = g1 + g2 + (g1 • g2)
Ex: Company has $300M annual revenue, which grows by 20% then shrinks by 10%. Calculate Net Percentage:
20% + (-10%) + [20% • (-10%)]
= 20% - 10% - 2%
= 8% Net Percentage Growth
Given an initial value and a final value, how do you calculate the percentage change between them?
% Change
= change in values / initial value
= (Initial - Final) / Initial
Ex: V1 = $300 M
V2 = $180 M
V1-V2 = -$120 M
-$120 M / $300 M = -2/5 = -40%
How is % Growth related to Growth Factor?
% Growth = Growth Factor - 1
How is Growth Factor related the % Growth?
In what type of calculations is it easiest to convert % Growth into Growth Factors?
Growth Factor = 1 + % Growth
Using Growth Factors is most beneficial when calculating multiple periods of growth, ESPECIALLY when the % growth varies for each period.
% Growth Growth Factor Ex: g1 = 10% GF = 1.1
g2 = 15% GF = 1.15
g3 = 20% GF = 1.2
Net GF = (1.1)•(1.15)•(1.2)
% Growth = [(1.1)•(1.15)•(1.2)] - 1
Sales Revenue - Cost of Goods Sold (COGS) = ?
Gross Margin
(Found in Income Statement
aka P & L)
What’s the equation (5 elements) used to calculate the Net Income (aka Bottom Line) on an Income Statement (aka P&L) for a Product company?
Sales Revenu
