When it comes to evaluating a business, there are many ways to perform a valuation. One way to do so is to use the Q Ratio. Known as Tobin’s Q Ratio or simply the Q Ratio, this method looks at the proportion between the values of a physical asset and its replacement cost. Developed by Nobel laureate economist James Tobin, this ratio presumes a single company; for public investors, if asset values can be estimated, the company’s market value of a publicly traded company may be approximately estimated. The original formula is as follows: Q Ratio = Market Value of Assets / Replacement Cost of Capital While this formula is the original iteration, approximating an asset’s replacement value is complicated […]

Contribution margin after marketing (CMAM) measures how much money is generated per unit retailed after factoring in a company’s variable costs, along with marketing costs. It’s analogous with contribution margin, however, a business must factor in marketing costs the company experiences when publicizing a good to likely consumers with details on the business’ wares. This metric determines how well net sales can satisfy expense obligations and what percentage of net sales may remain to satisfy fixed expenses. Comparing Variable Versus Fixed Costs Variable costs, as the name implies, are expenses that rise and fall according to output quantities. Fixed costs, conversely, are expenses that don’t change despite variation of production quantities. Understanding these concepts is helpful when calculating CMAM to […]