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Net operating margin

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Definition of Net operating margin

Net Operating Margin Image 1

Net operating margin

The ratio of net operating income to net sales.



Related Terms:

After-tax profit margin

The ratio of net income to net sales.


Annual fund operating expenses

For investment companies, the management fee and "other expenses,"
including the expenses for maintaining shareholder records, providing shareholders with financial statements,
and providing custodial and accounting services. For 12b-1 funds, selling and marketing costs are included.


approximated net realizable value at split-off allocation

a method of allocating joint cost to joint products using a
simulated net realizable value at the split-off point; approximated
value is computed as final sales price minus
incremental separate costs


Before-tax profit margin

The ratio of net income before taxes to net sales.


Buy on margin

A transaction in which an investor borrows to buy additional shares, using the shares
themselves as collateral.



cash flow from operating activities, or cash flow from profit

This equals the cash inflow from sales during the period minus the cash
outflow for expenses during the period. Keep in mind that to measure
net income, generally accepted accounting principles require the use of
accrual-basis accounting. Starting with the amount of accrual-basis net
income, adjustments are made for changes in accounts receivable,
inventories, prepaid expenses, and operating liabilities—and depreciation
expense is added back (as well as any other noncash outlay
expense)—to arrive at cash flow from profit, which is formally labeled
cash flow from operating activities in the externally reported statement
of cash flows.


Cash Flow Provided by Operating Activities

With some exceptions, the cash effects of transactions
that enter into the determination of net income, such as cash receipts from sales of goods
and services and cash payments to suppliers and employees for acquisitions of inventory and
expenses.


Net Operating Margin Image 2

Contribution margin

The difference between variable revenue and variable cost.


contribution margin

An intermediate measure of profit equal to sales revenue
minus cost-of-goods-sold expense and minus variable operating
expenses—but before fixed operating expenses are deducted. Profit at
this point contributes toward covering fixed operating expenses and
toward interest and income tax expenses. The breakeven point is the
sales volume at which contribution margin just equals total fixed
expenses.


contribution margin

the difference between selling price and
variable cost per unit or in total for the level of activity; it
indicates the amount of each revenue dollar remaining
after variable costs have been covered and going toward
the coverage of fixed costs and the generation of profits


Contribution margin

The margin that results when variable production costs are subtracted
from revenue. It is most useful for making incremental pricing decisions
where a company must cover its variable costs, though perhaps not all of its fixed
costs.


contribution margin ratio

the proportion of each revenue dollar remaining after variable costs have been covered;
computed as contribution margin divided by sales


degree of operating leverage

a factor that indicates how a percentage change in sales, from the existing or current
level, will affect company profits; it is calculated as contribution
margin divided by net income; it is equal to (1 - margin of safety percentage)


degree of operating leverage (DOL)

Percentage change in profits given a 1 percent change in sales.


Dollar safety margin

The dollar equivalent of the safety cushion for a portfolio in a contingent immunization
strategy.


EBITDA Margin

EBITDA divided by total sales or total revenue.


Net Operating Margin Image 3

Effective margin (EM)

Used with SAT performance measures, the amount equaling the net earned spread, or
margin, of income on the assets in excess of financing costs for a given interest rate and prepayment rate
scenario.


European Monetary System (EMS)

An exchange arrangement formed in 1979 that involves the currencies
of European Union member countries.



Exposure netting

Offsetting exposures in one currency with exposures in the same or another currency,
where exchange rates are expected to move in such a way that losses or gains on the first exposed position
should be offset by gains or losses on the second currency exposure.


Firm's net value of debt

Total firm value minus total firm debt.


Gross margin

Revenues less the cost of goods sold.


gross margin, or gross profit

This first-line measure of profit
equals sales revenue less cost of goods sold. This is profit before operating
expenses and interest and income tax expenses are deducted. Financial
reporting standards require that gross margin be reported in
external income statements. Gross margin is a key variable in management
profit reports for decision making and control. Gross margin
doesn’t apply to service businesses that don’t sell products.


Gross profit margin

Gross profit divided by sales, which is equal to each sales dollar left over after paying
for the cost of goods sold.


Gross Profit Margin

Gross profit divided by revenue.


Initial margin requirement

When buying securities on margin, the proportion of the total market value of
the securities that the investor must pay for in cash. The Security Exchange Act of 1934 gives the board of
governors of the Federal Reserve the responsibility to set initial margin requirements, but individual
brokerage firms are free to set higher requirements. In futures contracts, initial margin requirements are set by
the exchange.


International Monetary Fund

An organization founded in 1944 to oversee exchange arrangements of
member countries and to lend foreign currency reserves to members with short-term balance of payment
problems.


International Monetary Fund (IMF)

Organization originally established to manage the postwar fixed exchange rate system.


International Monetary Market (IMM)

A division of the CME established in 1972 for trading financial
futures. Related: Chicago Mercantile Exchange (CME).



Internet business model

a model that involves
(1) few physical assets,
(2) little management hierarchy, and
(3) a direct pipeline to customers


intranet

a mechanism for sharing information and delivering data from corporate databases to the local-area network (LAN) desktops


Maintenance margin requirement

A sum, usually smaller than -but part of the original margin, which must
be maintained on deposit at all times. If a customer's equity in any futures position drops to, or under, the
maintenance margin level, the broker must issue a margin call for the amount at money required to restore the
customer's equity in the account to the original margin level. Related: margin, margin call.


Margin

This allows investors to buy securities by borrowing money from a broker. The margin is the
difference between the market value of a stock and the loan a broker makes. Related: security deposit (initial).


Margin

The amount added to a lower figure to reach a higher figure, expressed as a percentage of the higher figure, e.g. the margin that profit represents as a percentage of selling price.


Margin account (Stocks)

A leverageable account in which stocks can be purchased for a combination of
cash and a loan. The loan in the margin account is collateralized by the stock and, if the value of the stock
drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. margin
rules are federally regulated, but margin requirements and interest may vary among broker/dealers.


Margin call

A demand for additional funds because of adverse price movement. Maintenance margin
requirement, security deposit maintenance
margin of safety With respect to working capital management, the difference between 1) the amount of longterm
financing, and 2) the sum of fixed assets and the permanent component of current assets.


Margin of safety

A measure of the difference between the anticipated and breakeven levels of activity.


margin of safety

the excess of the budgeted or actual sales
of a company over its breakeven point; it can be calculated
in units or dollars or as a percentage; it is equal to
(1 - degree of operating leverage)


Margin requirement (Options)

The amount of cash an uncovered (naked) option writer is required to
deposit and maintain to cover his daily position valuation and reasonably foreseeable intra-day price changes.


Margin Tax Rate

The tax rate applicable to the last unit of income.


Marginal

Incremental.


Marginal cost

The cost of producing one extra unit.


Marginal cost

The incremental change in the unit cost of a product as a result of a
change in the volume of its production.


Marginal Propensity to Consume

Fraction of an increase in disposable income that is spent on consumption.


Marginal Propensity to Import

Fraction of an increase in disposable income that is spent on imports.


Marginal Propensity to Save

Fraction of an increase in disposable income that is saved.


Marginal tax rate

The tax rate that would have to be paid on any additional dollars of taxable income earned.


marginal tax rate

Additional taxes owed per dollar of additional income.


Marginal Tax Rate

Percent of an increase in income paid in tax.


Monetarism

School of economic thought stressing the importance of the money supply in the economy. Adherents believe that the economy is inherently stable, so that policy is best undertaken through adoption of a policy rule.


Monetarist Rule

Proposal that the money supply be increased at a steady rate equal approximately to the real rate of growth of the economy. Contrast with discretionary policy.


Monetary Aggregate

Any measure of the economy's money supply.


Monetary Base

See money base.


Monetary gold

Gold held by governmental authorities as a financial asset.


Monetary / non-monetary method

Under this translation method, monetary items (e.g. cash, accounts
payable and receivable, and long-term debt) are translated at the current rate while non-monetary items (e.g.
inventory, fixed assets, and long-term investments) are translated at historical rates.


Monetary policy

Actions taken by the Board of Governors of the Federal Reserve System to influence the
money supply or interest rates.


Monetary Policy

Actions taken by the central bank to change the supply of money and the interest rate and thereby affect economic activity.


Monetizing the Debt

See printing money.


Net adjusted present value

The adjusted present value minus the initial cost of an investment.


Net advantage of refunding

The net present value of the savings from a refunding.


Net advantage to leasing

The net present value of entering into a lease financing arrangement rather than
borrowing the necessary funds and buying the asset.


Net advantage to merging

The difference in total post- and pre-merger market value minus the cost of the merger.


net asset value

The value of all the holdings of a mutual fund, less the fund's liabilities.


Net asset value (NAV)

The value of a fund's investments. For a mutual fund, the net asset value per share
usually represents the fund's market price, subject to a possible sales or redemption charge. For a closed end
fund, the market price may vary significantly from the net asset value.


Net assets

The difference between total assets on the one hand and current liabilities and noncapitalized longterm
liabilities on the other hand.


Net benefit to leverage factor

A linear approximation of a factor, T*, that enables one to operationalize the
total impact of leverage on firm value in the capital market imperfections view of capital structure.


Net book value

The current book value of an asset or liability; that is, its original book value net of any
accounting adjustments such as depreciation.


Net Cash after Operations

Cash flow available for debt service—the payment of interest and principal on loans. Generally calculated as cash provided by operating activities before interest
expense.


Net cash balance

Beginning cash balance plus cash receipts minus cash disbursements.


Net change

This is the difference between a day's last trade and the previous day's last trade.


net cost of normal spoilage

the cost of spoiled work less the estimated disposal value of that work


Net Domestic Product

GDP minus depreciation.


Net errors and omissions

In balance of payments accounting, net errors and omissions record the statistical
discrepancies that arise in gathering balance of payments data.


Net Exports

Exports minus imports.


Net financing cost

Also called the cost of carry or, simply, carry, the difference between the cost of financing
the purchase of an asset and the asset's cash yield. Positive carry means that the yield earned is greater than
the financing cost; negative carry means that the financing cost exceeds the yield earned.


Net float

Sum of disbursement float and collection float.


net float

Difference between payment float and availability float.


Net income

The company's total earnings, reflecting revenues adjusted for costs of doing business,
depreciation, interest, taxes and other expenses.


NET INCOME

The profit a company makes after cost of goods sold, expenses, and taxes are subtracted from net sales.


Net income

The last line of the Income Statement; it represents the amount that the company earned during a specified period.


Net income

The excess of revenues over expenses, including the impact of income taxes.


net income (also called the bottom line, earnings, net earnings, and net

operating earnings)
This key figure equals sales revenue for a period
less all expenses for the period; also, any extraordinary gains and losses
for the period are included in this final profit figure. Everything is taken
into account to arrive at net income, which is popularly called the bottom
line. net income is clearly the single most important number in business
financial reports.


Net inventory

The current inventory balance, less allocated or reserved items.


Net investment

Gross, or total, investment minus depreciation.


Net Investment

Investment spending minus depreciation.


Net lease

A lease arrangement under which the lessee is responsible for all property taxes, maintenance
expenses, insurance, and other costs associated with keeping the asset in good working condition.


Net National Product

GNP minus depreciation.


Net operating losses

Losses that a firm can take advantage of to reduce taxes.


Net Pay

The amount of an employee’s wages payable after all tax and other deductions have been removed.


Net period

The period of time between the end of the discount period and the date payment is due.


Net present value

A discounted cash flow methodology that uses a required rate of
return (usually a firm’s cost of capital) to determine the present value of a stream of
future cash flows, resulting in a net positive or negative value.


net present value method

a process that uses the discounted
cash flows of a project to determine whether the
rate of return on that project is equal to, higher than, or
lower than the desired rate of return


Net present value (NPV)

The present value of the expected future cash flows minus the cost.


Net present value (NPV)

A discounted cash flow technique used for investment appraisal that calculates the present value of future cash flows and deducts the initial capital investment.


net present value (NPV)

Equals the present value (PV) of a capital investment
minus the initial amount of capital that is invested, or the entry cost
of the investment. A positive NPV signals an attractive capital investment
opportunity; a negative NPV means that the investment is substandard.


Net Present Value (NPV)

The present value of all future cash inflows minus the present value
of all cash outflows


net present value (NPV)

the difference between the present values of all cash inflows and outflows for an investment project


net present value (NPV)

Present value of cash flows minus initial investment.


Net Present Value (NPV) Method

A method of ranking investment proposals. NPV is equal to the present value of the future returns, discounted at the marginal cost of capital, minus the present value of the cost of the investment.


Net present value of future investments

The present value of the total sum of NPVs expected to result from
all of the firm's future investments.



 

 

 

 

 

 

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