Accounting

Net Sales

The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods, and any discounts allowed. The sales number reported on a company's financial statement is a net sales number reflecting these deductions.

Pretax Income

A company's earnings after all operating expenses, including interest and depreciation, have been deducted from total sales or revenue, but before income taxes have been subtracted. Because pretax income excludes taxes, this measure enables the intrinsic profitability of companies to be compared across locations where corporate taxes differ.

Gross Profit

A company's revenue minus its Cost of Goods Sold. Gross profit is a company's residual profit after selling a product or service and deducting the costa associated with its production and sale. To calculate gross profit: examine the income statement, take the revenue and subtract the cost of goods sold. Also called "Gross Margin" and "Gross Income"

Gross Margin

A company's total sales revenue minus its cost of goods sold divided by the total revenue, expressed as a percentage. The gross margin represents the percent of total sales revenue that the company maintains after incurring the direct cost associated with producing the goods and services sold by a company. The higher the percentage, the more the company retains on each dollar of sales to service its other costs and obligations.

Income Statement

A financial statement that measures a company's performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period.

Operating Margin

A ratio used to measure a company's pricing strategy and operating efficiency. Calculated as: Operating Income/Net Sales. Operating margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as wages, raw materials, etc. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt.

SG&A

Selling, General and Administrative Expense: it is the sum of all direct and indirect selling expenses and all general and administrative expenses of a company. Direct selling expenses are expenses that can be directly linked to the sale of a specific unit such as credit, warranty and advertising expenses. Indirect selling expenses are expenses that cannot be directly linked to the sale of a specific unit, but which are proportionally allocated to all units sold during a certain period, such as telephone, interest and postal charges. General and Administrative expenses include salaries of non-sales personnel, rent, heat and lights

Operating Profit (EBIT)

The profit earned from a firm's normal core business operations. This value does not include any profit earned from the firm's investments (such as earnings from firms in which the company has partial interest) and the effects of interest and taxes. Calculated as Operating Profit= Operating Revenue- COGS- Operating Expenses- Depreciation and Amortization.