MGBU 4441 Lecture Notes - Lecture 11: Gross Margin, Operating Margin, Balance Sheet
17 Apr 2017
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Profitability: 3 types of costs & 3 types of profitability ratios. Direct costs: material & labor that gets incorporated into product. Additional (sg&a, r&d, etc. ) costs: overhead that gets paid regardless of amount of production. Financing costs: interest, etc. , that is paid for use of capital (also includes taxes) Gross margin is ability of firm to cover direct costs & is equal to gross profit divided by sales. Operating margin is ability of firm to cover direct & additional costs & is equal to operating income divided by sales. Net margin is return on sales & is equal to net income divided by sales. Presentation of data: measures & ratios use common sizing (expressing as percent of sales) to compare firm(s) across period of time. Ability of firm"s fixed assets to generate sales. High fixed asset turnover=high ability to optimize usage, schedule capital expenses o o o o.
