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Gross Margin
Gross Margin is the same as Gross Profit Margin which is Net Revenue from Operations less Cost of Goods sold. It excludes all the other operating and non-operating expenses like selling and general administrative expenses, Depreciation and Amortization and Interest expenses.Gross margin denotes how much a company retains by selling its goods and services post deducting cost incurred in goods and services.
Revenue from operations - $10 million
Less: Cost of Goods Sold - $5 million
Gross Profit / Gross Margin $5 million
In Percentage terms:
Gross Margin = (Gross Profit/Net Sale)*100
Gross Margin indicates how much percentage a company earns by selling its goods and services after deducting the cost associated in producing goods and service.
Negative Gross Margin indicates that a company is selling their goods and services at a loss.
Profit Margin
Profit Margin is the percentage of profit earned on the purchase cost
How to Calculate Profit Margin:
For Example: Cost price = $1k
Selling price = $1.2k
Profit = Selling price – Cost price
Profit = $1.2K - $1k
Profit = $.2k
Profit Margin = (Profit/Cost price)*100
Profit Margin = ($.2k/$1k)*100
Profit Margin = 20%
Net Margin
Net Margin is the same as Net Profit Margin in which you deduct all the expenses such as Depreciation and Amortization, Selling and General Administrative expenses, Interest cost and taxes from net revenue to arrive at Net Profit which is distributed to the owners.
Net Margin denotes how much an organization earns for their Shareholders after deducting all the expenses incurred to run the business.
Revenue from operations
Less: Cost of Goods Sold
Gross Profit / Gross Margin
Less: Selling and General Administrative expenses
Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA)
Less: Depreciation and Amortization
Earnings before Interest and Taxes (EBIT)
Less: Interest Expenses
Earnings before Taxes (EBT)
Less: Taxes
Profit after Taxes (PAT)
In Percentage terms:
Net Margin = (Net Profit/Net Sale)*100
Net Margin indicates how much percentage a company earns by selling its goods and services after deducting all the costs incurred to run the business.
Negative Net Margin indicates a company making an overall loss.
Net Profit Margin is the percentage of profit earned after incurring all the expenses to run the business.
How to Calculate Net Profit Margin:
For Example: Cost price = $1k
Selling price = $1.2k
other expenses to run the business = $0.1k
Net Profit = Selling price – Cost price + other office expense to run the business
Net Profit = $1.2K - $1k – $0.1k
Net Profit = $.1k
Net Profit Margin = (Net Profit/Cost price)*100
Net Profit Margin = ($.1k/$1k)*100
Net Profit Margin = 10%
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