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Operating profit margin

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Definition of Operating profit margin

Operating Profit Margin Image 1

Operating profit margin

The ratio of operating margin 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.


Before-tax profit margin

The ratio of net income before taxes to net sales.


Book profit

The cumulative book income plus any gain or loss on disposition of the assets on termination of the SAT.


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.


Operating Profit 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


Controllable profit

The profit made by a division after deducting only those expenses that can be controlled by the
divisional manager and ignoring those expenses that are outside the divisional manager’s control.


Cost–volume–profit analysis (CVP)

A method for understanding the relationship between revenue, cost and sales volume.


cost-volume-profit (CVP)

analysis a procedure that examines
changes in costs and volume levels and the resulting
effects on net income (profits)


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)


Operating Profit Margin Image 3

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.


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.


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

The profit a company makes before expenses and taxes are taken away.


Gross profit

The difference between the price at which goods or services are sold and the cost of sales.
Income The revenue generated from the sale of goods or services.


Gross profit

The result of subtracting cost of goods sold from sales. Synonymous with gross margin.


Gross Profit

Revenue less cost of goods sold.


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.


Operating Profit Margin Image 4

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.


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.


Net operating losses

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


Net operating margin

The ratio of net operating income to net sales.


Net profit

See operating profit.


Net profit margin

Net income divided by sales; the amount of each sales dollar left over after all expenses
have been paid.


operating activities

Includes all the sales and expense activities of a business.
But the term is very broad and inclusive; it is used to embrace all
types of activities engaged in by profit-motivated entities toward the
objective of earning profit. A bank, for instance, earns net income not
from sales revenue but from loaning money on which it receives interest
income. Making loans is the main revenue operating activity of banks.


operating budget

a budget expressed in both units and dollars


Operating cash flow

Earnings before depreciation minus taxes. It measures the cash generated from
operations, not counting capital spending or working capital requirements.


operating cash flow

See cash flow from operating activities.


Operating Cash Flow

Income available after the payment of taxes, plus the value of the
non-cash expenses


Operating cycle

The average time intervening between the acquisition of materials or services and the final
cash realization from those acquisitions.


Operating Earnings

A term frequently used to describe earnings after the removal of the
effects of nonrecurring or nonoperating items.


Operating expense

Any expense associated with the general, sales, and administrative
functions of a business.


OPERATING EXPENSES

The total amount that was spent to run a company this year.


Operating Expenses

The amount of money the company must spend on overhead, distribution, taxes, underwriting the risk and servicing the policy. It is a factor in calculating premium rates.


Operating exposure

Degree to which exchange rate changes, in combination with price changes, will alter a
company's future operating cash flows.


Operating income

The net income of a business, less the impact of any financial activity,
such as interest expense or investment income, as well as taxes and extraordinary
items.


Operating Income

A measure of results produced by the core operations of a firm. It is common
for both recurring and nonrecurring items that are associated with operations to be included
in this measure. operating income is typically found in multistep income statements and is a pretax
measure.


Operating lease

Short-term, cancelable lease. A type of lease in which the period of contract is less than the
life of the equipment and the lessor pays all maintenance and servicing costs.


Operating lease

The rental of an asset from a lessor, but not under terms that would
qualify it as a capital lease.


Operating Lease

One where the risks and benefits, as well as ownership, stays with the lessor.


Operating leverage

Fixed operating costs, so-called because they accentuate variations in profits.


operating leverage

A relatively small percent increase or decrease in
sales volume that causes a much larger percent increase or decrease in
profit because fixed expenses do not change with small changes in sales
volume. Sales volume changes have a lever effect on profit. This effect
should be called sales volume leverage, but in practice it is called operating
leverage.
operating liabilities
The short-term liabilities generated by the operating
(profit-making) activities of a business. Most businesses have three types
of operating liabilities: accounts payable from inventory purchases and
from incurring expenses, accrued expenses payable for unpaid expenses,
and income tax payable. These short-term liabilities of a business are
non-interest-bearing, although if not paid on time a business may be
assessed a late-payment penalty that is in the nature of an interest
charge.


operating leverage

the proportionate relationship between
a company’s variable and fixed costs


operating leverage

Degree to which costs are fixed.


Operating Line of Credit

A bank's commitment to make loans to a particular borrower up to a specified maximum for a specified period, usually one year.


Operating Loan

A loan advanced under an operating line of credit.


Operating profit

The profit made by the business for an accounting period, equal to gross profit less selling, finance, administration etc. expenses, but before deducting interest or taxation.


operating profit

See earnings before interest and income tax (EBIT).


Operating risk

The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is
created by operating leverage. Also called business risk.


operating risk (business risk)

Risk in firm’s operating income.


Original margin

The margin needed to cover a specific new position. Related: margin, security deposit (initial)


phantom profit

a temporary absorption costing profit caused
by producing more inventory than is sold


product contribution margin

the difference between selling price and variable cost of goods sold


product line margin

see segment margin


PROFIT

What’s left over after you subtract the cost of goods sold and all your expenses from sales.


Profit

The difference between income and expenses.


profit

The general term profit is not precisely defined; it may refer to net
gains over a period of time, or cash inflows less cash outflows for an
investment, or earnings before or after certain costs and expenses are
deducted from income or revenue. In the world of business, profit is
measured by the application of generally accepted accounting principles
(GAAP). In the income statement, the final, bottom-line profit is generally
labeled net income and equals revenue (plus any extraordinary gains)
less all expenses (and less any extraordinary losses) for the period. Inter-
nal management profit reports include several profit lines: gross margin,
contribution margin, operating profit (earnings before interest and
income tax), and earnings before income tax. External income statements
report gross margin (also called gross profit) and often report one
or more other profit lines, although practice varies from business to
business in this regard.


Profit and Loss account

A financial statement measuring the profit or loss of a business – income less expenses – for an accounting period.


profit and loss statement (P&L statement)

This is an alternative moniker
for an income statement or for an internal management profit report.
Actually, it’s a misnomer because a business has either a profit or a loss
for a period. Accordingly, it should be profit or loss statement, but the
term has caught on and undoubtedly will continue to be profit and loss
statement.


Profit before interest and taxes (PBIT)

See EBIT.


profit center

a responsibility center in which managers are responsible for generating revenues and planning and controlling all expenses


Profit center

An entity within a corporation against which both revenues and costs are
recorded. This results in a separate financial statement for each such entity, which
reveals a net profit or loss, as well as a return on any assets used by the entity.


Profit centre

A division or unit of an organization that is responsible for achieving profit targets.


Profit margin

Indicator of profitability. The ratio of earnings available to stockholders to net sales.
Determined by dividing net income by revenue for the same 12-month period. Result is shown as a
percentage.


profit margin

the ratio of income to sales


Profit Margin Ratio

A measure of how much profit is earned on each dollar of sales. It
is calculated by dividing the net income available for distribution to
shareholders by the total sales generated during the period.


profit module

This concept refers to a separate source of revenue and
profit within a business organization, which should be identified for
management analysis and control. A profit module may focus on one
product or a cluster of products. profit in this context is not the final, bottom-
line net income of the business as a whole. Rather, other measures
of profit are used for management analysis and decision-making purposes—
such as gross margin, contribution margin, or operating profit
(earnings before interest and income tax).


profit ratios

Ratios based on sales revenue for a period. A measure of
profit is divided by sales revenue to compute a profit ratio. For example,
gross margin is divided by sales revenue to compute the gross margin
profit ratio. Dividing bottom-line profit (net income) by sales revenue
gives the profit ratio that is generally called return on sales.


profit sharing

an incentive payment to employees that is
contingent on organizational or individual performance


Profit Sharing Plan

A retirement plan generally funded by a percentage of company
profits, but into which contributions can be made in the absence of profits.


profit-volume graph

a visual representation of the amount
of profit or loss associated with each level of sales


Profitability index

The present value of the future cash flows divided by the initial investment. Also called
the benefit-cost ratio.



 

 

 

 

 

 

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