Finance Formulas / July 25, 2018 / Alia Marquez
There are many ways for a company to access financing, and this is particularly so if a company has realistic expectations of future earnings against which it might borrow. For example, if a company has a reasonable amount of short-term debt but is expecting substantial returns from a project or other investment not too long after its debts are due, it will likely be able to stave off its debt.
An economic profit or loss is the difference between the revenue received from the sale of an output and the opportunity cost of the inputs used. In calculating economic profit, opportunity costs are deducted from revenues earned. Opportunity costs are the alternative returns foregone by using the chosen inputs, and as a result, a person can have a significant accounting profit with little to no economic profit.
The higher the DFL, the more volatile earnings per share (EPS) will be. Since interest is a fixed expense, leverage magnifies returns and EPS, which is good when operating income is rising, but can be a problem during tough economic times when operating income is under pressure.
EBITDA margin differs from the operating margin, which excludes depreciation and amortization from the profitability measure. Other variations of a firm's profit margin include gross profit margin, net profit margin and after-tax profit margin. For more on the differences between EBITDA margin and other profitability margins.
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