Financial Statements: Gross Profit Margins & Margins EBITDA as percent, how do you factor as "high" or "low"?

zxcib's picture
Rank: Senior Monkey | 95

Hi,
Naive question maybe. I'm looking at high level financials for a company of interest.
What background info, perhaps from the industry, would I need to make a judgment call as to whether Gross Profit Margins and Margins EBITDA, are "high" or "low", et cetera (how else can you interpret figures)?
Source you can point me to? (I'm going to see if there is anything I can quickly look at over at macabacus)

The question I want to answer is really how profitable is this company, growth factor (?) and major expenses.

I'm interning with PE firm. Just kind of taking the plunge on financial statements. My background is in medicine.

Comments (11)

Aug 25, 2017

Look in their annual reports for competitors. Look at competitors' financial statements. Compare margins.

Aug 25, 2017

"Low" and "high" are all relative, so you would need a comp set or know what industry averages/standards are to determine if your target is high or low.

Just looking at a Company's financials for a year won't really give you much idea if its good or bad if you have no idea how their competitors or other industry peers are performing,

Aug 25, 2017

Thanks. Also, to answer company "size growth rate" is that via a figure for "Working Capital"?

Array

Aug 25, 2017

it's probably top-line growth, but your question isn't really clear

Aug 25, 2017

it's probably top-line growth, but your question isn't really clear

Aug 25, 2017

@FinesseHunter thanks. Found info on top-line growth here. http://www.investopedia.com/ask/answers/149.asp
I have a figure for Total Sales for this company by industry (two industries) for each of two years. I also have data on Sales by customer, greater than X$ amount for two years.

Would this be sufficient source for "top-line growth", ( my "size growth rate") given it is sales-dependent?
(I've been working off of Excel templates for net profit, ebitda, and margins) Assuming here I would again look at margins but for sales?

Array

Aug 30, 2017

Just to be clear top-line = sales and top-line growth = sales growth. Bottom-line is related to the margins the Company gets on sales.

As Hugo mentioned, if you are looking at a public company or know of a public company that is comparable to one you are looking at, you can probably find out information on the margins of competitor's to compare the Company to. It varies greatly depending on industry, business model (manufacturer versus distributor), etc. As a free resource, Aswath Damodaran's website includes databases on Companies that could help you get to average margins within an industry as another example.

Aug 30, 2017

"High" or "Low" depend on the mean/median value of the comparables

Aug 30, 2017

@masters Thanks, where might I get a table of comparable values for industry in question?

Array

Aug 30, 2017
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Array