• Cost of sales, which is the cost of the products sold, including all related costs.
The lower the cost of sales compared to revenue, the higher the gross profit.
• Gross margin, which is calculated by dividing gross profit by net sales revenue. If
the gross margin is improving consistently, the economic outlook for the firm is
enhanced.
• Operating expenses, which should be evaluated to determine if the firm’s needs
in the near interim will necessitate increased outlays. Large increases in operating
expenses may result in net losses for the firm.
• Operating margin, which is calculated by dividing operating income or loss by
net sales revenue, and is an indication of a company’s ability to turn sales into
pre-tax profit after operating expenses are deducted.
• Net margin, which is calculated by dividing net income or net loss by net sales
revenue. It evaluates the net profit or loss for each dollar of net sales. For example,
a net margin of -24% indicates that a firm is losing 24 cents on each dollar
of net sales revenue.
• The firm’s balance sheet, which is a financial snapshot of a company on a given
date that displays its financial assets and liabilities. If current assets are less
than or not much more than current liabilities, the firm will likely have trouble
meeting its short-term obligations.