Finance Formulas / July 19, 2018 / Avalynn Orr
Contribution margin is a cost accounting concept that lets a company determine the profitability of its individual products. The phrase contribution margin can also refer to a per unit measure of a product's gross operating margin. It's calculated as the product's sale price minus its total variable costs per unit. This metric helps a company evaluate different areas of the business to determine the profitability of each service or product.
Business valuation is a process and a set of procedures used to estimate the economic value of an owner's interest in a business. Valuation is used by financial market participants to determine the price they are willing to pay or receive to effect a sale of a business. In addition to estimating the selling price of a business, the same valuation tools are often used by business appraisers to resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase price among business assets, establish a formula for estimating the value of partners' ownership interest for buy-sell agreements, and many other business and legal purposes such as in shareholders deadlock, divorce litigation and estate contest. In some cases, the court would appoint a forensic accountant as the joint expert doing the business valuation.
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