Profit Margin
Measures the profit genereted from sales (per £ of sales)
Depending on what information you have available to you will determine how you calculate the top line of the equation.
Gross profit can be:
EBIT + Admin Expenses
Operating Profit + Admin Expenses
Turnover – Cost of Sales
Gross Profit
Net Profit can be:
Gross Profit – Admin Expenses
EBIT
Operating Profit
Net Profit
Example
Balance Sheet
Turnover
200m
Cost of Sales
157m
Gross Profit
70m
Administration expenses
20m
Operating Profit (Earnings before interest and taxes)
50m
Solution
Gross Profit Margin
Net Profit Margin
Excellent post on profit margins.
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