A company has good gross margin when it is competitive with its industry peers and remains stable in the long-term, according to Investopedia. Profit margins vary greatly from industry-to-industry. For example, the airline industry averages 5 percent, while the software industry averages 90 percent.Know More
Gross profit margin is the proportion of money left over after subtracting the cost of goods sold from revenues. Gross margin is a company's best resource for meeting additional expenses and retaining earnings. It is calculated by subtracting the cost of goods and services from revenue and dividing that figure by revenue. For example, if Company A has $100,000 in revenue and $50,000 in COGS, its gross profit margin is 50 percent. Gross profit margin is used by investors and stock analysts to compare companies in the same industry, notes Investopedia.
Companies with high profit margins are considered superior investments because they build equity faster, have more capital to expand operations and are better prepared to weather a downturn than a low profit margin company, which could be wiped out in a recession, explains Investopedia. Gross profit margin is also used to test the growth and validity of a particular product or service. This factor is important because an item can generate a large volume of sales but not be a viable or competitive investment option because of low profit margins.Learn more about Accounting
Accounting allows businesses to calculate their profit and perform analyses. Accounting is important for determining if a company's earnings reports are accurate, making it important for stockholders and regulators.Full Answer >
A breakeven analysis is important in evaluating a business investment because it allows owners or operators to understand the costs that must be overcome to earn a profit. If the breakeven point is perceived as too challenging, operators may opt to avoid the risk of making the investment.Full Answer >
Contribution margin is the per-unit profit of a product. It is calculated by subtracting all variable costs to sell a good from its sale price. For example, if a product sells for $20 and its variable costs total $12, it has a contribution margin of $8 per unit.Full Answer >
Accrued dividends refer to declared dividends that have not been disbursed to shareholders, according to Investopedia. Accrued dividends are regarded as a liability until the payout date.Full Answer >