Contribution Margin and Profit-Volume (P/V) Ratio The contribution margin is a measure of a company's profitability generated from each unit of output produc...
The contribution margin is a measure of a company's profitability generated from each unit of output produced. It is calculated by dividing the contribution margin per unit by the unit cost of production.
A high contribution margin indicates that a company is generating a significant amount of profit from each unit of product or service sold, while a low contribution margin indicates that a company is generating a lower profit per unit.
The profit-volume (P/V) ratio is another useful profitability measure that compares a company's overall profitability to its contribution margin.
The P/V ratio helps investors and creditors assess a company's overall financial health and its ability to generate future profits. It is important to note that the P/V ratio is not the only profitability measure that should be considered. Other measures, such as the return on equity (ROE) and the return on assets (ROA), are also used to assess a company's financial health