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Course · 19 lessons
Profitability & Quality
Separate great businesses from average ones — margins, returns on capital, and moats.
Gross Margin
The share of revenue left after the direct cost of making or buying what a company sells, shown as a percentage.
Operating Margin
The share of revenue left after all operating costs, showing how profitable the core business is before interest and taxes.
Net Profit Margin
The share of revenue that becomes bottom-line profit after every cost, including interest and taxes.
EBITDA Margin
Operating cash profitability as a percent of revenue, before interest, taxes, depreciation, and amortization.
Contribution Margin
Revenue left over after variable costs — the amount each sale contributes toward fixed costs and profit.
Operating Leverage
How much profit amplifies (up or down) when sales change, driven by the mix of fixed vs. variable costs.
Return on Equity
How much profit a company generates for each dollar of shareholders' equity, shown as a percentage.
Return on Assets
How much profit a company earns for each dollar of total assets it controls, shown as a percentage.
Return on Invested Capital
The after-tax operating return a company earns on all the capital (debt plus equity) invested in its business.
Return on Capital Employed
Operating profit (EBIT) as a percentage of the long-term capital a company has put to work in its business.
Return on Tangible Equity
Profit earned on shareholders' equity after stripping out goodwill and intangibles — a stricter return measure.
Gross Profitability
Gross profit divided by total assets — a quality signal that often predicts returns better than earnings-based ratios.
Economic Moat
A durable competitive advantage that lets a company protect profits and high returns on capital for years.
Asset Turnover
Revenue generated per dollar of assets — how efficiently a company uses its asset base to produce sales.
Inventory Turnover
How many times a company sells and replaces its inventory in a period — a measure of inventory efficiency.
Receivables Turnover
How many times a year a company collects its average accounts receivable — the inverse view of DSO.
Days Sales Outstanding
The average number of days a company waits to collect cash after making a credit sale.
Cash Conversion Cycle
The number of days cash is tied up in operations — from paying suppliers to collecting from customers.
Accruals Ratio
Measures how much of reported earnings is accounting estimates rather than cash — high accruals are a red flag.