What is the Operating Leverage and how to use it?

The Operating Leverage is a financial efficiency ratio not specifically a “profitability ratio”. The OL is a ratio used to measure how operating income is affected by how fixed & variable costs intertwine with sales volume. Operating leverage and profitability are positively related as profits are determined by the fixed and variable costs associated with generating that revenue.

The Operating Leverage ratio explained. The Operating Leverage is a financial efficiency ratio not specifically a “profitability ratio”. The OL is a ratio used to measure how operating income is affected by how fixed & variable costs intertwine with sales volume. Operating leverage and profitability are positively related as profits are determined by the fixed… Continue reading →

What is the Gross Margin and how to use it?

The Gross Margin (also known as Gross Profit Margin) is a “profitability ratio” that measures gross profit to sales revenue. It reflects the profits of a business after paying off its costs to produce its goods and services (COGS). The ratio is reflected as a percentage showing each dollar of revenue that is retained as gross profit. Whatever money is left over after a company subtracts all the costs to deliver its product or service gives us the Gross Profit Margin.

The Gross Margin ratio explained. The Gross Margin (also known as Gross Profit Margin) is a “profitability ratio” that measures gross profit to sales revenue. It reflects the profits of a business after paying off its costs to produce its goods and services (COGS). The ratio is reflected as a percentage showing each dollar of… Continue reading →

What is the ROA ratio and how to use it?

The Return on Assets (ROA) is a “profitability ratio” used to measure how much profit it can generate from its assets. It shows how efficient a company is at earning profits from utilising its economic resources or assets on the balance sheet.

The Return on Assets ratio explained. The Return on Assets (ROA) is a “profitability ratio” used to measure how much profit it can generate from its assets. It shows how efficient a company is at earning profits from utilising its economic resources or assets on the balance sheet. The assets ratio is a great way… Continue reading →

What is the ROC ratio and how to use it?

The Return on Capital (ROC) is a “profitability ratio” used to measure the efficiency in which a business allocates its capital to generate profits. Return on capital is one of the best ratio’s that investors can use to determine whether a business will make a viable investment opportunity. The capital return ratio shows how much operating income (EBIT) is generated for every dollar invested in capital.There are two types of capital return ratios: ROCE (Return on Capital Employed) and ROIC (Return on Invested Capital). Both are used when valuing the capital returns on a business and each have a place which we will explore further below.

The Return on Capital ratio explained. The Return on Capital (ROC) is a “profitability ratio” used to measure the efficiency in which a business allocates its capital to generate profits. Return on capital is one of the best ratio’s that investors can use to determine whether a business will make a viable investment opportunity. The… Continue reading →

What is the ROE ratio and how to use it?

The Return on Equity ratio explained. The Return on Equity (ROE) is a “profitability ratio” used to measure the profitability of a business in relation to its equity deployed. The ratio shows how efficient (or deficient) the company is at taking the equity investments of its shareholders and deploying that equity and generating income from… Continue reading →

What is the Compound Annual Growth Rate?

The CAGR (Compound Annual Growth Rate) measures the average annual growth of an investment over a given period. CAGR is a helpful tool for investors because it measures investment growth (or decline) over time. This can be a useful way to measure against a benchmark if you have one.

The Compound Annual Growth Rate explained. The Compound Annual Growth Rate (CAGR) measures the average annual growth of an investment over a given period. CAGR is a helpful tool for investors because it measures investment growth (or decline) over time. This can be a useful way to measure against a benchmark if you have one…. Continue reading →