The most important profitability metrics are the EBIT and EBITDA margin, as well as the Return of Invested Capital ROIC (entity perspective) and the Return on Equity (shareholder perspective):

The EBIT and EBITDA margins express profit as percentages of revenues:

  • EBIT margin = EBIT / Revenues
  • EBITDA margin = EBITDA / Revenues

The EBITDA margin provides an indication on how well operating costs are managed and controlled. The EBITDA margin is to be preferred to the EBIT margin when making cross-company comparison, as companies often use differing depreciation and amortisation schemes.

There is also the gross margin, equal to what is left from revenues after the direct costs have been deducted. However most companies define gross margins in different manners, so it can be hard to compare gross margins across companies.

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