Other profitability ratios to be managed by the financial controller
Posted: Tue Jan 07, 2025 10:13 am
The margin rate is a comparison of a company's revenue with its net profit, expressed as a percentage of a currency unit. The formula for calculating it is therefore relatively simple.
To calculate a net margin , for example, you have to divide the company's net profit (after deducting all expenses) by the turnover, and multiply by 100.
For example, a company austria phone data with a turnover of 100,000 euros and total expenses (wages, taxes, operations, production, etc.) of 60,000 euros. Its net profit is therefore 40,000 euros. We therefore relate 40,000 to 100,000, which gives 0.4, and we multiply by 100. This gives a net profit margin of 4%. This 4% represents the share of revenue that the company actually generates at the end of its annual balance sheet, once all expenses have been paid.
Thanks to this standardization system reported at a rate out of 100, it becomes easy to compare the performance of companies of different sizes. For example, we can compare the profitability of an SME with that of a startup, or even a multinational, if there is any interest in doing so. We then realize that small companies, despite a turnover or profits much lower than those of large companies, have a much higher profitability rate. This is why this indicator is so important for investors , and therefore banks.
The concepts of profitability ratios and corporate margins are at the heart of specialized training in corporate law or business school. An MBA in Finance allows you to master these concepts and, above all, to learn which ratio to calculate depending on the situation, skills that are highly prized in most modern companies.
While profit margin rates are the most well-known indicators, there are many other profitability ratios that can be used depending on the situation. These include return on investment, on equity, on assets, on sales, on invested capital or even interest coverage. Each ratio has its use, and it is rarely necessary to calculate them all. An accountant or a corporate finance expert will be able to calculate the right rate based on the company's situation, to allow the decision-maker to best manage his interests.
Return on Investment (ROI)
It is calculated by dividing a company's initial investment by its net profit after investment, all divided by 100. This indicator therefore measures not the profitability of the company, but that of the investment in relation to its cost. The percentage obtained shows how many euros are actually earned in relation to each euro invested. An indicator very often used even by individuals in real estate.
To calculate a net margin , for example, you have to divide the company's net profit (after deducting all expenses) by the turnover, and multiply by 100.
For example, a company austria phone data with a turnover of 100,000 euros and total expenses (wages, taxes, operations, production, etc.) of 60,000 euros. Its net profit is therefore 40,000 euros. We therefore relate 40,000 to 100,000, which gives 0.4, and we multiply by 100. This gives a net profit margin of 4%. This 4% represents the share of revenue that the company actually generates at the end of its annual balance sheet, once all expenses have been paid.
Thanks to this standardization system reported at a rate out of 100, it becomes easy to compare the performance of companies of different sizes. For example, we can compare the profitability of an SME with that of a startup, or even a multinational, if there is any interest in doing so. We then realize that small companies, despite a turnover or profits much lower than those of large companies, have a much higher profitability rate. This is why this indicator is so important for investors , and therefore banks.
The concepts of profitability ratios and corporate margins are at the heart of specialized training in corporate law or business school. An MBA in Finance allows you to master these concepts and, above all, to learn which ratio to calculate depending on the situation, skills that are highly prized in most modern companies.
While profit margin rates are the most well-known indicators, there are many other profitability ratios that can be used depending on the situation. These include return on investment, on equity, on assets, on sales, on invested capital or even interest coverage. Each ratio has its use, and it is rarely necessary to calculate them all. An accountant or a corporate finance expert will be able to calculate the right rate based on the company's situation, to allow the decision-maker to best manage his interests.
Return on Investment (ROI)
It is calculated by dividing a company's initial investment by its net profit after investment, all divided by 100. This indicator therefore measures not the profitability of the company, but that of the investment in relation to its cost. The percentage obtained shows how many euros are actually earned in relation to each euro invested. An indicator very often used even by individuals in real estate.