Acc 561 Week 3 Ebta Essay

Typically, net profit is measured on a quarterly or annual basis. When compared with a company net profit during other periods, it can provide a useful measure for how profitable a company is over time and the overall performance of the company & management team.

Profitability ratios are used to measure the overall efficiency of thebusiness, as well as management effectiveness. Examples of profitability ratios include the gross margin ratio and the net margin ratios.

Economic profit formula is when you take your Revenue and subtract from it the cost fixed, variable cost per unit and opportunity cost. For Accounting profit Revenue should be subtracted with the cost fixed and variable cost per unit.

The profitability ration in a financial analysis is the ability of the organization to generate a profit. This ratio looks at areas such as net income, revenue, gross profit, earnings before taxes and interest and operating profit to name a few. Profitability shows the bottom line numbers for a company and is the goal that most organizations strive for. Ratios examined were gross profit margin and net profit margins

Profitability ratios provide insight into how much profit a company generates with the money that shareholders have invested in the company. Profit margin, return on equity, and earnings per share are all forms of profitability ratios (Stocks Simplified, 2011).

The Company believes EBITDA is useful to investors in evaluating ARI's operating performance compared to that of other companies in the same industry. In addition, ARI's management uses EBITDA to evaluate operating performance. The calculation of EBITDA eliminates the effects of financing, income taxes and the accounting effects of capital spending. These items may vary for different companies for reasons unrelated to the overall operating performance of a company's business. EBITDA is not a financial measure presented in accordance with U.S. generally accepted accounting principles (U.S. GAAP). Accordingly, when analyzing the Company's operating performance, investors should not consider EBITDA in isolation or as a substitute for net earnings, cash flows provided by operating activities or other statement of operations or cash flow data prepared in accordance with U.S. GAAP. The calculation of EBITDA is not necessarily comparable to that of other similarly titled measures reported by other

The Operating Income is the Revenue minus the Cost of Goods Sold (COGS), Labor and other day to day expense. It measures profitability and tells investors how much revenue will become profitable for a company. (Operating

Profitability ratios are measurements used by companies in order to measure a business ability to make earnings relative to sales assets and equity. These ratios assess the ability of a company to generate earnings, profits and cash flows relative to some metric, often the amount of money that a company has invested. They emphasize how effectively the profitability of a company is being handled.

PERIOD YEAR EBIT after tax (EBIAT) + Depreciation =Cash Flow from Operations (CFFO) +/- Change in Net Working Capital +/- Capital Expenditures =Free Cash Flow (FCF) +Terminal Value (TV) =Sum of FCF + TV Present Value - Market Value of Debt = Valuation of Equity / Number of Shares Value of Equity per Share

Investors use financial statements to identify if the company is making losses or profit thus is an indicator of whether a company is growing or not. Net income provides information to current and future investors as to whether the company or business is making money or not and this information provides insight on the likelihood or the business succeeding or failing in the long. For example if a

Income statement refers to the financial statement that helps in evaluating a company 's financial progress over a particular accounting period (Robinson, 2009). The financial progress of a particular company is evaluated by providing a summary of the manner in which the business sustains its revenues and expenses through operating and non-operating undertakings. An income statement also indicates the net profit or loss suffered over a particular accounting period, usually over a financial quarter or year (Robinson, 2009).

It uses a more sophisticated metric than just earnings, than just price. But the concept is the same. It uses EBIT–earnings before interest and taxes and compares that to enterprise value, which is the market value of a company’s stock plus the long-term debt that a company has. That adjusts for companies that have

Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) is essentially net income with interest, taxes, depreciation and amortisation added back to it, and can be used to analyse and compare profitability between companies and industries.

It is the measure of determining the organization’s performance in generating the earnings above the expenses for a specified period. Profit of an organization is the income earned after deducting the cost and expenses. There are three profitability ratios as enumerated below:

Profitability is measured by calculating and comparing financial matrix for different areas of the business. This will help stakeholders to identify which areas are doing good and which areas are not. Net profit margin, gross profit margin, operating profit margin and pre-tax profit margin are financial data that helps to identify profitability in relation to the company’s revenue, as displayed below in Figure 1.