The Finance Gem ๐Ÿ’Ž Week #61: Margin, Markup, CEOs, Linkedin and EBITDA

Additional bonus content and discounts to elevate your skills, impact and influence.

Sponsored by


This weekโ€™s issue at a glance:

  • 4 Finance Gems ๐Ÿ’Ž remember to vote your favorite in the poll section

  • The Financial Analysis Masterclass pre-sale is now on. As a Finance Gem๐Ÿ’Žsubscriber you can save an additional 30% off the launch price. Details below.

  • Iโ€™ve partnered with Wall Street Prep and Wharton Online to bring you an incredible opportunity to save hundreds of dollars and build your FP&A career. Check out this a one-of-a-kind, theory-meets-practice, FP&A certificate program. Details below.

  • My friend Soufyan Hamid launched a value-packed Financial Storytelling Course and his students are loving it. Iโ€™ve also secured an exclusive 30% off coupon just for the Finance Gem ๐Ÿ’Žsubscribers, so if youโ€™re looking to elevate your career and influence, check it out below.

  • Iโ€™d love to get your thoughts on this weekโ€™s poll. Share your thoughts below!


With Bay Area Times, you will get graphics like these, so you quickly understand the news without having to read through long and boring paragraphs.

Visual-based newsletter on business and tech

We explain the latest business, finance, and tech news with visuals and data.๐Ÿ“Š

All in one free newsletter that takes < 5 minutes to read. ๐Ÿ—ž

Save time and become more informed today.๐Ÿ‘‡

NEW COURSE ALERT: The Financial Analysis Masterclass

Pre-Sales on Now for a Limited Time.

The Finance Gem Subscribers Save an Additional 30%.ย 

Use coupon code MASTERMIND at checkout.

Become a Strategic Mastermind. Go from Data to Decision Making to Drive Business Results and Shareholder Value with this high-impact course. Designed to empower professionals and executives with the critical thinking and analytical skills necessary to significantly influence their organizations growth, stability and success.

  1. Margin is not Markup

โ–ถ๏ธ Margin shows how much of a product's sales price you got to keep.

โ–ถ๏ธ Markup shows how much over cost you've sold the product for.

๐ŸŽฏ Let's dig deeper into each of these . Note weโ€™ll be looking at per unit calculations, but you can easily extrapolate formulas to calculate totals:

1// Margin (or Gross Profit Margin in this case) is the proportion of a productโ€™s Sales Price that exceeds the Product Cost.

โ˜‘๏ธ Margin = (Product Sales Price - Product Cost)/ Product Sales Price

โ˜‘๏ธ Margin = Gross Profit per Product / Product Sales Price x 100

Note that Margin is calculated as a percentage.

Meanwhile, Gross Profit is calculated as an amount.

To get the Gross Profit Margin you need to divide Gross Profit per Product by the Sales Price per Product and multiply by 100.

2// Markup is the proportion by which you increase the Product Cost to arrive at the Sales Price.

โ˜‘๏ธ Markup = (Product Sales Price - Product Cost)/ Product Cost

โ˜‘๏ธ Markup = Gross Profit per Product / Product Cost x 100

Note that markup can be calculated based on a product's variable cost or based on its total (absorption) cost.

โ˜‘๏ธ Marking up the variable cost could result in under costing and underpricing the product, which in turn may increase revenues at the expense of reduced profitability and cash flows.

๐Ÿ’Ž Use Cost-Volume-Profit analysis to determine the number of units you will need to sell to break even.

โ˜‘๏ธ Marking up the absorption cost could result in over costing and overpricing, which in turn could reduce revenues also at the expense of reduced profitability and cash flows.

๐Ÿ’ŽBe careful with the fixed manufacturing depreciation expense which gets included in the full/absorption cost of a product.

๐ŸŽฏ To calculate your margin if you know your markup: โ˜‘๏ธ Margin = Markup /(1+Markup)

๐ŸŽฏ To calculate your markup if you know your margin: โ˜‘๏ธ Markup = Margin / (1-Margin)

๐ŸŽฏ Hereโ€™s an example:

Assume a product with a Cost of $50 has a Sales Price of $100

Margin = (Product Sales Price - Product Cost)/ Product Price = ($100-$50)/$100 = 50%

Markup = (Product Sales Price - Product Cost)/ Product Cost = ($100 - $50) / $50 = 100%

If you know the Margin is 50%, then the Markup will be 0.50 / (1-0.5) = 1 or 100%

If you know the Markup is 100%, then the Margin will be 1 / (1+1) = 0.5 or 50%

๐ŸŽฏ How to use Margin and Markup:

โ˜‘๏ธ Both Margin and Markup calculate the difference between price and cost.

โ˜‘๏ธ Margin relates that difference to the product Price.

โ˜‘๏ธ Markup relates that difference to the product Cost.

โ˜‘๏ธ If you know the Product Cost, use Markup to determine an appropriate selling Price.

โ˜‘๏ธ If you know the Product Gross Profit, use it to determine the Gross Profit Margin and track profitability over time.

โ˜‘๏ธ And because Price is (ideally) always larger than Cost, remember that Markup will always be the larger metric.

Introducing Wharton & Wall Street Prep's Exclusive FP&A Certificate Program

  • When: 8 Weeks May 13 - July 7, 2024 (8 weeks)

  • Time Commitment: 8 Hours per Week

  • Format: Online Self Paced with Live Office Hours

  • Early Registration Deadline: April 15th, 2024

  • Tuition: $5,000 (save $300 using my affiliate registration link)

  • Certificate: Issued by Wharton and Wall Street Prep

  • Closing Ceremony: Penn Club in NYC (Attend Live or Virtually)

  • Faculty: Taught jointly by Wharton & Wall Street Prep

  • Guest Speakers: Marcela Martin (Buzzfeed), Josette Leslie (, Debbie Sebastian (Eagle Family Foods Group), and more.

  • Alumni Benefits including:

    • Exclusive Networking Events

    • Invites to Alumni LinkedIn Group and Slack Channels

    • Exclusive Recruiting events with top Recruiters

  1. Top CEO Errors to learn from right?


These arenโ€™t leadership failures.

They are...

Financial planning failures.

Risk management failures.

Ethical governance failures.

โ€œThose that fail to learn from history are doomed to repeat it.โ€ (Churchill).

So hereโ€™s my (very) short list of failures in corporate strategy, financial planning, risk management and ethical governance.

- ๐—ก๐—ฒ๐˜„ ๐—–๐—ผ๐—น๐—ฎ: Insufficient market research and risk assessment before product overhaul.

- ๐—˜๐—ป๐—ฟ๐—ผ๐—ป: Misrepresentation of financial health & risk exposure, undermining fiduciary duty.

- ๐—ฆ๐˜๐—ฎ๐—ฟ๐—ฏ๐˜‚๐—ฐ๐—ธ๐˜€: Misallocation of capital in aggressive expansion without market demand analysis.

- ๐—ฆ๐—ฒ๐—ฎ๐—ฟ๐˜€: Neglected investment in e-commerce infrastructure in the face of digital retail growth.

- ๐—จ๐—ฏ๐—ฒ๐—ฟ Ignoring long-term financial costs of toxic corporate culture on litigation and brand value.

- ๐—•๐—ผ๐—ฒ๐—ถ๐—ป๐—ด ๐Ÿณ๐Ÿฏ๐Ÿณ ๐— ๐—ฎ๐˜…: Underestimated financial and reputational costs of compromising on product safety.

- ๐—”๐—ข๐—Ÿ ๐—ง๐—ถ๐—บ๐—ฒ ๐—ช๐—ฎ๐—ฟ๐—ป๐—ฒ๐—ฟ ๐— ๐—ฒ๐—ฟ๐—ด๐—ฒ๐—ฟ: Write-downs following misjudgments in valuation, synergies and integration.

- ๐—š๐—ฒ๐—ป๐—ฒ๐—ฟ๐—ฎ๐—น ๐—˜๐—น๐—ฒ๐—ฐ๐˜๐—ฟ๐—ถ๐—ฐ: Strategic overreliance on financial engineering at the expense of core innovation investment.

- ๐—ฆ๐—ฎ๐—บ๐˜€๐˜‚๐—ป๐—ด ๐—š๐—ฎ๐—น๐—ฎ๐˜…๐˜† ๐—ก๐—ผ๐˜๐—ฒ ๐Ÿณ: Overlooking the financial impact of quality control failures on brand and market position.

If you would like to add to this list, feel free to reply to this email.

Visit to learn more.

You may have financial forecasts and fancy KPIs, but do you also have

๐Ÿ”ฎautomated business financial planning for your strategic goals?

๐Ÿ”ฎdecision-ready dashboards with actionable insights?

๐Ÿ”ฎboard-ready reports with one click?

  1. EBITDA is Not Cash Flow

EBITDA is Not Cash Flow.

๐ŸŽฏ It is however a necessary evil, and whether you like it or not, itโ€™s here to stay.

๐ŸŽฏ EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) is calculated just as the name implies:

E >> Earnings (Net Profit)

B >> Before (add back)

I >> Interest expense

T >> Tax expense

D >> Depreciation expense

A >> Amortization expense

๐ŸŽฏ Here are 3 Benefits of EBITDA to know:

1๏ธโƒฃ It is easy to calculate.

As opposed to Operating Cash Flow (OCF), Free Cash Flow (FCF) or Economic Value Added (EVA).

2๏ธโƒฃ It has become universally used as the language of (proxy) Profitability.

Or Cash Flow, depending on who you talk to, and what they use it for.

โ˜‘๏ธ Your company likely uses it to manage internal performance.

โ˜‘๏ธ Your bankers use it to measure your ability to repay debt.

โ˜‘๏ธ Your M&A firm will use it to value your business.

3๏ธโƒฃ It allows you to compare financial performance results across businesses and industries.

It (presumably) levels the playing field by removing the impact of several variables from the financial analysis:

โ˜‘๏ธ the companyโ€™s capital structure (removes the interest)

โ˜‘๏ธ the companyโ€™s operating leverage (removes depreciation & amortization expense)

โ˜‘๏ธ the companyโ€™s tax circumstances (removes the tax expense)

โžก๏ธ And here are 10 Critical Flaws of EBITDA:

1.ย ย ย ย ย It is not a GAAP metric.

Which means there is no standardized formula to calculate it, and companies will choose to calculate it however it benefits them most.

Such as in the case of Earnings per Share, when a company may exclude stock based compensation from its GAAP earnings while another may not.

2.ย ย ย ย ย It implies that all net income translates into cash the same way.

For example, using EBITDA as a proxy for cash flow ignores the required investment into working capital assets to support the business future growth.

3.ย ย ย ย ย It does not consider the amount of required capital reinvestment.

While Depreciation and Amortization may be non-cash items, every business has CAPEX investment needs which arenโ€™t captured in EBITDA.

4.ย ย ย ย ย It does not account for the amount of cash absorbed into working capital assets.

Changes in receivables, payables and inventory balances can mean that an EBITDA of $1 million disguises the reality of an operating cash flow deficit of $2 million.

5.ย ย ย ย ย It implies that loan repayment will be prioritized.

In fact, a company may choose other uses for its cash, such as investing in growth, acquisitions or plant capacity expansions, and leave no residual capital left to repay loans.

6.ย ย ย ย ย It doesnโ€™t say anything about the quality of earnings.

Which means earnings and EBITDA may be inflated with deferred expenses, aggressive accounting policy choices, or underfunded pension liabilities.

7.ย ย ย ย ย It is a poor measure of profitability.

For example, GAAP revenue recognition criteria differs around the world which can overstate earnings; meanwhile, interest and taxes are usually real cash outflows which reduce earnings in practice.

EBITDAโ€™s ability to proxy for cash is also distorted in all instances where revenue recognition doesnโ€™t correlate with the receipt of cash, such as percentage of completion in long term contracts. In those instances, customers are billed in accordance to contractual terms, while the company recognizes revenue based on costs incurred, and the true profitability of the contract could be wildly overstated until it is actually completed.

8.ย ย ย ย ย It is an inadequate comparison for acquisition multiples.

EBITDA doesnโ€™t capture industry specific capital investment requirements nor company specific underlying strength in operating earnings.

It is trying to level the playing field and strip out so-called noise from the profitability picture of a company, but when the noise is inherent in the make up of an entire industry, stripping out critical components like CAPEX maintenance results in a distorted image of the earnings potential of that entity.

9.ย ย ย ย ย It can be severely misleading when used as a measure of cash flow.

EBITDA ignores several real cash outflows as well as understates the future expected increase of those cash outflows.

10.ย ย It can easily be manipulated through aggressive accounting policies.

There are numerous financial reporting areas where management can manipulate company earnings and artificially inflate EBITDA, such as with percentage of completion revenue recognition, deferred expenses, pension liabilities, or depreciation assumptions.

If youโ€™re looking to elevate your career and influence, check out The Financial Storytelling Program by Soufyan Hamid.

This is the method that made Soufyan and other students go from misunderstood analysts to respected finance leaders. Use code OANASTORYTELLING30 to get an exclusive 30% discount off the course price.

  1. Linkedin is Free Education

You can get access to some of the best finance and accounting courses.

Taught by experts in their fields, professors, CPAs, PMPs and MBAs.

For ๐—™๐—ฅ๐—˜๐—˜.

โžก๏ธ ๐—”๐—น๐—น ๐˜†๐—ผ๐˜‚ ๐—ป๐—ฒ๐—ฒ๐—ฑ ๐—ถ๐˜€ ๐—ฎ ๐—Ÿ๐—ถ๐—ป๐—ธ๐—ฒ๐—ฑ๐—ถ๐—ป ๐—ฃ๐—ฟ๐—ฒ๐—บ๐—ถ๐˜‚๐—บ ๐˜๐—ฟ๐—ถ๐—ฎ๐—น. Cancel it after 30 days and you won't get charged.

You'll get 30 Days to explore and take all the courses you need to grow your skills and knowledge in finance and accounting.

โžก๏ธ ๐—›๐—ฒ๐—ฟ๐—ฒ'๐˜€ ๐—บ๐˜† ๐—ฐ๐˜‚๐—ฟ๐—ฎ๐˜๐—ฒ๐—ฑ ๐˜€๐—ฒ๐—น๐—ฒ๐—ฐ๐˜๐—ถ๐—ผ๐—ป ๐—ผ๐—ณ ๐Ÿฎ๐Ÿฌ ๐—ฒ๐˜…๐—ฐ๐—ฒ๐—น๐—น๐—ฒ๐—ป๐˜ ๐—ฐ๐—ผ๐˜‚๐—ฟ๐˜€๐—ฒ๐˜€ ๐˜๐—ผ ๐—ต๐—ฒ๐—น๐—ฝ ๐˜†๐—ผ๐˜‚ ๐—ด๐—ฒ๐˜ ๐˜€๐˜๐—ฎ๐—ฟ๐˜๐—ฒ๐—ฑ.

Download the PDF with active links here.

Visit my digital store to check out my viral cheat sheets and checklists


Join me for cash flow insights and actionable strategies in a power-hour designed for ambitious professionals, executives and business leaders.

Learn how to master cash flow, enhance your strategic decision-making, and compound your impact and influence in boardrooms and beyond.


If youโ€™re enjoying this newsletter, please forward it to your friends & colleagues. It only takes 3 seconds. Writing this took 4 hours.

๐ŸŽฏRefer 1 person and get my exclusive eBook 10 Essential Strategic Finance Concepts that link Accounting, Finance and Strategy

๐ŸŽฏRefer 10 people and get to pick your favorite infographic from my digital store.


What was your favorite topic to read this week?

Login or Subscribe to participate in polls.

As always, if you have specific suggestions or feedback, simply reply to this email.

How can I help you?

  1. Upgrade your strategic finance skills with The Cash Flow Masterclass, my highly reviewed, on-demand video course. Portuguese and Executive versions now available, as well as discounts up to 50% based on your geographical location.

  2. Pre-order The Financial Analysis Masterclass - pre-sales on now and exclusive 30% off coupon for Finance Gem subscribers. Use code MASTERMIND at checkout.

  3. Train your team or engage your events with strategic financeย workshops and presentations. Reach out here for training and here for speaking.

  4. Reach out if you want business intelligence at your fingertips, decision-ready dashboards and board-ready reports. ย Reach out here.

  5. Sponsor a future issue of The Finance Gem ๐Ÿ’Žย 

Thanks so much for reading.