How well is your company’s financial health?
Let us walk you through: Gross profit vs EBITDA
Your company has two critical metrics, Gross profit and EBITDA. Both are important for your company’s growth but let us understand the different aspects.
Meaning: Gross profit is a business's profit after deducting all the costs of manufacturing and selling the product.
How can knowing gross profit help your business?
It will tell you whether you have more money to spend on your business operations or vice versa.
It gives you insights of:
- Better vision of your company
- Detailed data on how much profit the company is making
- Helps in assessing the pricing strategy of the company
Coming to EBITDA (Earnings before Interest, Tax, Depreciation and Amortization)
EBITDA is just like an eliminating process, where you eliminate the impact of non-operating management decisions, such as tax rates, interest rates, and significant intangible assets.
Suppose you are a startup and you want to compare your startup with others, EBITDA helps you in that evaluation.
It gives you insights on:
- Profitability of core operations
- Gives a clear picture of the cash flow from operations
Just like any other financial analysis, these two serve unique purposes. By leveraging both metrics, stakeholders can gain a clearer, more nuanced picture of a company’s financial performance, leading to more informed decision-making.
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