Contribution margin is the difference between sales revenue and variable cost. It allows a company to determine the profitability of individual products by measuring how sales affect profits. In its ratio form, it is calculated as Contribution Margin ÷ Sales Revenue.
While revenue from a company’s product is how much money the company makes from selling that item, a product’s variable costs include those expenses that vary depending on the company’s production volume.
Selling, general and administrative expenses (SG&A) are a company's total direct and indirect costs from selling its product or service as well as its total general and administrative expenses. The company reports its SG&A on the income statement.
Operating leverage tells investors about the relationship between a company's fixed and variable costs. The higher a company's fixed costs in relation to its variable costs, the greater its operating leverage, and vice versa.
Inventory turnover is a ratio that shows how quickly a company uses up its supply of goods over a given time frame. Inventory turnover may be calculated as the market value of sales divided by ending inventory, or as cost of goods sold (COGS) divided by average inventory.
Otherwise known as the "bottom line", net income is the most commonly used indicator of a company's profitability. Learn more about how it an investor's decision to own or sell a stock.
Learn more about the costs that go into production.
Operating profit is the profit generated from the core business of a company before accounting for interest and taxes.
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