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Companies use profitability ratios in order to measures their ability to generate returns through effective allocation and use of available resources. KPIs in this area have often as main component profit or return. One of the most popular profitability ratios is the Berry ratio.
In a previous blog post we investigated the Return on Marketing Investment, a metric that analyzes the marketing activity from a financial point of view that is more complex than the revenue from sales generated by marketing. The current blog post aims at exploring another area where finance meets marketing: the break-even analysis. In this area, we consider that finance actually needs marketing: the break-even analysis aims at determining from which point on (i.e. volume of sales), a business begins to generate profits.
Economic value added or EVA® is a measure of the true economic profit of a company. Although in a sense it is nothing more than the traditional, commonsense idea of “profit”, it makes a clear separation from dubious accounting adjustments that may occur (remember ENRON, which for a long period of time was reporting profits, while in fact was in the final approach to becoming insolvent).
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