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Faculties and Departments => Business and Economics => Topic started by: Repon on July 09, 2015, 01:00:44 PM

Title: What is the difference between gross profit margin and gross margin?
Post by: Repon on July 09, 2015, 01:00:44 PM
What is the difference between gross profit margin and gross margin?

The use of the terms such as gross margin and gross profit margin often varies by the person using the terms. Some people prefer to use gross margin instead of gross profit when referring to the dollars of gross profit. Often they want to avoid the use of the word profit because the selling and administrative expenses must also be covered. Recall that gross profit is defined as Net Sales minus Cost of Goods Sold.

Others use the term gross margin to mean the gross profit as a percentage of net sales. Perhaps the term gross profit margin means the gross profit percentage or the gross margin ratio.
Title: Re: What is the difference between gross profit margin and gross margin?
Post by: sajib on July 22, 2015, 09:47:07 AM
Gross profit margin and net profit margin are two separate profitability ratios used to assess a company's financial stability and overall health.

Profit margin is a percentage measurement of profit that expresses the amount a company earns per dollar of sales. Obviously, if a company makes more money per sale, it has a higher profit margin.

The gross profit margin shows total revenue minus the cost of goods (the amount it cost the company to produce the goods or services that it sold, commonly referred to as cost of goods sold, or COGS). The calculation to arrive at gross profit margin is:

Gross profit margin = (revenue - cost of goods) / revenue

As a simple example, if a company sells goods for $100, and the cost to the company to produce the goods is $70, the company's gross profit margin is 30%. Gross profit margin provides a general indication of a company's profitability, but it is not a precise indication.

The net profit margin is a more accurate measure of a company's profitability, as it reveals the percentage of revenue that actually reflects a company's profit per dollar of sales. Net profitability is an important distinction, since increases in revenue do not necessarily translate into actual increased profitability. Net profit is the gross profit (revenue minus cost of goods) minus operating expenses and all other expenses, such as taxes and interest paid on debt. The formula for net profit margin is as follows:

Net profit margin = (revenue - cost of goods - operating expenses - other expenses - interest - taxes) / revenue

Examining its net profit margin can help a company gain a much clearer picture of its overall expenses compared to revenue. It is often much easier for a company to increase its profitability by reducing costs than by increased sales, especially if the company operates in a very competitive market.

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Title: Re: What is the difference between gross profit margin and gross margin?
Post by: mostafiz.eee on July 22, 2015, 11:56:01 AM
Informative.