## Gross Profit Margin: A Gauge of Cost Management

Read about the gross profit margin, an indicator of a company’s effectiveness to keep costs under control.

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# Financial Analysis

## Gross Profit Margin: A Gauge of Cost Management

## Free Cash Flow-to-Sales: A Useful Way to Measure Profitability

## Free Cash Flow: The True Measure of Value

## Net Margin: a Measure of Accounting Profitability

## How to Calculate Compound Annual Growth Rate (CAGR)

## DuPont Analysis: Dissecting Return on Equity

## Return on Equity (ROE): A Measure of Company Profitability

Read about the gross profit margin, an indicator of a company’s effectiveness to keep costs under control.

Read how to use the free cash flow-to-sales ratio to analyze a company’s profitability.

What is Free Cash Flow? Free cash flow (FCF) is what Warren Buffett calls “owner earnings”. It is the amount of cash a company has left over after taking care of capital expenditures (CapEx) and working capital needs. Why Care About Free Cash Flow? Positive and growing free cash flow over a range of the…

Net margin, also called net profit margin, is a measure of a company’s accounting profitability, i.e. profits reported on the income statement. Net margin compares a company’s net earnings, or net income, to its revenues or sales. How to Calculate Net Margin To calculate a company’s net margin, divide net earnings by sales. For example, Microsoft reported 2021 net earnings of $61.3…

The compound annual growth rate, or CAGR, is the average annual growth rate for any value or amount that grows over time, such as the rate of return of a stock or entire portfolio, factoring in reinvestment and therefore compounding. CAGR is a widely accepted way of smoothing out investment returns which allows comparing the performances of different…

DuPont analysis describes a process which breaks down a company’s return on equity (ROE) into individual components. DuPont analysis is especially useful to assess the underlying reasons for changes in a company’s ROE over time, and to compare these changes to competitors. Note that while this blog post describes three-stage DuPont analysis, five-stage DuPont analysis exists…

Return on equity (ROE) is a measure of a company’s profitability, and one of Warren Buffett’s key criteria when looking for strong companies to invest in. ROE shows us how much money a company can generate with the money invested by its shareholders, i.e. shareholders’ equity. Since shareholders’ equity consists in part of retained earnings, which is the…