Financial Terms
unit margin

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Definition of unit margin

Unit Margin Image 1

unit margin

The profit per unit sold of a product after deducting product
cost and variable expenses of selling the product from the sales price of
the product. unit margin equals profit before fixed operating expenses
are considered and before interest and income tax are deducted. unit
margin is one of the key variables in a profit model for decision-making

Related Terms:

breakeven point

The annual sales volume level at which total contribution
margin equals total annual fixed expenses. The breakeven point is only a
point of reference, not the goal of a business, of course. It is computed by
dividing total fixed expenses by unit margin. The breakeven point is
quite useful in analyzing profit behavior and operating leverage. Also, it
gives manager a good point of reference for setting sales goals and
understanding the consequences of incurring fixed costs for a period.

After-tax profit margin

The ratio of net income to net sales.

Asian currency units (ACUs)

Dollar deposits held in Singapore or other Asian centers.

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.

Contribution margin

The difference between variable revenue and variable cost.

Doctrine of sovereign immunity

Doctrine that says a nation may not be tried in the courts of another country
without its consent.

Unit Margin Image 2

Dollar safety margin

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

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

European Currency Unit (ECU)

An index of foreign exchange consisting of about 10 European currencies,
originally devised in 1979.

Future investment opportunities

The options to identify additional, more valuable investment opportunities
in the future that result from a current opportunity or operation.

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.

Growth opportunity

Opportunity to invest in profitable projects.

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.


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 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 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.



Marginal tax rate

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

Net operating margin

The ratio of net operating income to net sales.

Net present value of growth opportunities

A model valuing a firm in which net present value of new
investment opportunities is explicitly examined.

Net profit margin

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

Operating profit margin

The ratio of operating margin to net sales.

Opportunity cost of capital

Expected return that is foregone by investing in a project rather than in
comparable financial securities.

Opportunity costs

The difference in the performance of an actual investment and a desired investment
adjusted for fixed costs and execution costs. The performance differential is a consequence of not being able
to implement all desired trades. Most valuable alternative that is given up.

Opportunity set

The possible expected return and standard deviation pairs of all portfolios that can be
constructed from a given set of assets.

Original margin

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

Portfolio opportunity set

The expected return/standard deviation pairs of all portfolios that can be
constructed from a given set of assets.

Present value of growth opportunities (NPV)

Net present value of investments the firm is expected to make
in the future.

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

Unit benefit formula

Method used to determine a participant's benefits in a defined benefit plan by
multiplying years of service by the percentage of salary.

Unit investment trust

Money invested in a portfolio whose composition is fixed for the life of the fund.
Shares in a unit trust are called redeemable trust certificates, and they are sold at a premium above net asset value.

Variation margin

An additional required deposit to bring an investor's equity account up to the initial margin
level when the balance falls below the maintenance margin requirement.


A depreciation method that relates a machine’s depreciation to the number of units it makes each
accounting period. The method requires that someone record the machine’s output each year.


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.

Marginal cost

The cost of producing one extra unit.

Margin of safety

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

Opportunity cost

The lost opportunity of not doing something, which may be financial or non-financial, e.g. time.

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

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.

unit-driven expenses

Expenses that vary in close proportion to changes
in total sales volume (total quantities of sales). Examples of these types of
expenses are delivery costs, packaging costs, and other costs that depend
mainly on the number of products sold or the number of customers
served. These expenses are one of the key factors in a profit model for
decision-making analysis. Segregating these expenses from other types
of expenses that behave differently is essential for management decisionmaking
analysis. The cost-of-goods-sold expense depends on sales volume
and is a unit-driven expense. But product cost (i.e., the cost of
goods sold) is such a dominant expense that it is treated separately from
other unit-driven operating expenses.

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.

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 ratio

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

defective unit

a unit that has been rejected at a control inspection
point for failure to meet appropriate standards of
quality or designated product specifications; can be economically
reworked and sold through normal distribution channels

equivalent units of production (EUP)

an approximation of the number of whole units of output that could have been
produced during a period from the actual effort expended
during that period; used in process costing systems to assign
costs to production

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)

opportunity cost

a potential benefit that is foregone because
one course of action is chosen over another

opportunity cost of capital

the highest rate of return that
could be earned by using capital for the most attractive alternative
project(s) available

product contribution margin

the difference between selling price and variable cost of goods sold

product line margin

see segment margin

profit margin

the ratio of income to sales

segment margin

the excess of revenues over direct variable expenses and avoidable fixed expenses for a particular segment

spoiled unit

a unit that is rejected at a control inspection
point for failure to meet appropriate standards of quality
or designated product specifications; it cannot be economically
reworked to be brought up to standard

total contribution margin

see contribution margin

total units to account for

the sum of the beginning inventory
units and units started during the current period

unit-level cost

a cost caused by the production or acquisition
of a single unit of product or the delivery of a single
unit of service

units started and completed

the difference between the number of units completed for the period and the units in beginning inventory; it can also be computed as the number of units started during the period minus the units in ending inventory

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

Gross margin

Revenues less the cost of goods sold.

Marginal cost

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

Opportunity cost

Lost revenue that would otherwise have been realized if a different
decision point had been selected.

marginal tax rate

Additional taxes owed per dollar of additional income.

opportunity cost of capital

Expected rate of return given up by investing in a project.

opportunity cost

Benefit or cash flow forgone as a result of an action.

present value of growth opportunities (PVGO)

Net present value of a firm’s future investments.

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

Percent of an increase in income paid in tax.

Opportunity Cost

The forgone value of an alternative not chosen, usually the most profitable alternative.

Personal Responsibility and Work Opportunity Reconciliation Act

A federal Act requiring the reporting of new hires into a national database.


EBITDA divided by total sales or total revenue.

Gross Profit Margin

Gross profit divided by revenue.

Unit of measure (UOM, UofM)

The summarization unit by which an item is tracked, such as a
box of 100 or an each of 1.

Margin Tax Rate

The tax rate applicable to the last unit of income.







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