What is accounting and why is it important?

Business always requires an accurate estimate of data and a clear format for storing this data. The manual processing of data has a high probability of errors. No wonder this cumbersome process taken a huge toll, and the company could not remain a piece of cake for everyone. This is where the adage of “necessity is the mother of the invention” comes into the framework and due to the joint effort of archive holders and business analysts, accounting became the next big thing in trade and business. The day was over when tracking data required a huge number of files to keep financial data.

Accounting is the professional field that deals with systematic processes such as identifying, recording, measuring, verifying, classifying and summarizing financial information. It discusses the nature of a business and its goods and analyzes the profit-and-loss ratio after one complete financial transaction. It tells business owners the value of their joint shares, the assets of the asset and the details of their business obligations.

What is profit margin?

As shown above, accountancy acts as a virtual help for your business, helping you to foresee how well you handle your company's financial transactions. An essential and decisive reason for devising the subject of accounting was the efficient estimation of the profit margin in the company.

The profit margin is a ratio that indicates the percentage of sales of a particular company after deducting all remaining costs. It compares profits with the sale of your business and helps you determine the financial health of your company. The percentage of the profit margin can be easily calculated by reducing the total cost of the total sales and then dividing it by revenue.
PROFIT MARGIN = SALE - TOTAL COSTS/TURNOVER * 100

There are three types of profit margins that work to measure the profit ratio for companies.
Gross profit margin
Net profit margin
Operational profit margin

Gross profit margin

Gross profit margin tends to compare revenues with variable costs; it helps you calculate the profit on each product after excluding fixed costs.

Gross profit margin = Net turnover - COGS/Net turnover Margin Calculator also uses the same formulas to calculate the gross profit margin and the net profit margin.
Net profit margin

This kind of profit is usually called by accountants why they present the net profit of their business. This percentage ratio describes the amount of revenue remaining after deduction of all costs of the total sale.

Net Profit Margin = Net Income/R * 100

Operational profit margin

It reflects the ratio between the operating result and the net turnover. The Operating Profit Margin describes the profit margin from operating activities, i.e. gross profit less operating costs, before deduction of interest and taxes.

Operating profit margin = operating income/Turnover * 100

What is EBITDA?

EBITDA is the abbreviation of Profit before interest, taxes, depreciation and amortization. It is an important indicator that measures the profitability and financial performance of your business. In some circumstances, EBITDA is used instead of simple earning or net income.

In terms of business, we use the formula below to calculate the metric of EBITDA.

EBITDA = net income + interest + taxes + depreciation + amortization

Or else.

EBITDA = operating result + depreciation + amortization

This key indicator typically focuses on some restrictive components of business transactions; this makes it a widely used and equally discouraged parameter of business. There are also EBITDA Calculator that can be used online for free. International Financial Reporting Standards (IFRC) does not recognise this measure as it focuses only on the company's operational decisions and ignores the depreciation of the company's assets.

Without these considerations, EBITDA provides an incomplete picture of the company and hides its high level of debt. The variation in tax and interest rates can disrupt and effectively disrupt the net income of your company. So by setting them aside, the EBITDA gives investors quick insight into a start-up of novice entrepreneurs, whether a restructured business can generate before all taxes and payments are paid to creditors. #finance #banking #corporate #return_on_assets #ebit #ebitda #margin #profit #profit_margin #gross_margin #revenue #present_value #future_value