Intermediate performance measures break the income statement into steps so you can see how the final result is built. Nothing to fear: they are simply logical stages.

The key stages

• Gross margin: what the trading activity generates.
• Value added: the wealth created by the company, before paying employees and the state.
• EBITDA: the profitability of the core business, before depreciation and financing. A closely watched indicator.
• Operating profit: EBITDA once depreciation is taken into account.

Each stage isolates one source of performance. If the bottom line disappoints, these measures show at which level the problem appears.

Key takeaway: think of these measures as steps on a staircase. EBITDA is the most scrutinised: it captures the pure profitability of the activity.