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Valuing a company can be quite complex. There are total assets, debts, cash flow, and so many more things to consider. But the Enterprise Value (EV) formula is the key that can help you unlock a company’s total valuation. 

A business can plan for many of its expenses. Fixed expenses, like employee salaries (not including sales commission), software subscription fees, insurance, and advertising, tend to remain the same for long periods of time. But what about costs that change over time, even day to day? These are known as variable expenses, and that’s what we’ll discuss today.

Many well-known companies own subsidiaries: some more common examples include Facebook, which owns Instagram, and Google, which owns YouTube. That’s not to say that they aren’t found amongst smaller businesses, too—take, for instance, a local restaurant with a food truck, or a coffee shop with multiple locations. These may also be registered as subsidiaries underneath their parent company.

Of the many different financial statements professionals might deal with on any given day, one of critical importance is known as the contribution margin income statement. What makes this statement so important is its ability to show profit potential. It serves as a specialized document in financial analysis that strips down revenue into critical components and provides an at-a-glance view of a company’s variable and fixed costs relative to its sales. 

Last year was challenging for small and medium-sized businesses (SMBs), and things aren’t shaping up to be much better this year. While the United States has avoided a recession, economic uncertainty, shifting market conditions, and difficulties accessing financing have seriously strained SMBs. Nearly half of them now cite inflation as a top operating obstacle.