In a survey of nearly 200 senior marketing managers, 69 percent responded that they found the "return on sales" metric very useful.
Companies are collections of projects and markets, individual areas can be judged on how successful they are at adding to the corporate net profit.
The main complication is in more complex businesses when overhead needs to be allocated across divisions of the company.
Almost by definition, overheads are costs that cannot be directly tied to any specific product or division.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is a very popular measure of financial performance.
It can be useful because it removes factors that change the view of performance depending upon the accounting and financing policies of the business.
Supporters argue it reduces management's ability to change the profits they report by their choice of accounting rules and the way they generate financial backing for the company.
This metric excludes from consideration expenses related to decisions such as how to finance the business (debt or equity) and over what period they depreciate fixed assets.
... EBITDA can be calculated by adding back the costs of interest, depreciation, and amortization charges and any taxes incurred.
{\displaystyle {\text{EBITDA}}\ (\$)={\text{Net profit}}\ (\$)+{\text{Interest Payments}}\ (\$)+{\text{Taxes Incurred}}\ (\$)+{\text{Depreciation and Amortization Charges}}\ (\$)}
It is a measurement of what proportion of a company's revenue is left over, before taxes and other indirect costs (such as rent, bonus, interest, etc.
A good operating margin is needed for a company to be able to pay for its fixed costs, such as interest on debt.
Operating margin can be considered total revenue from product sales less all costs before adjustment for taxes, dividends to shareholders, and interest on debt.