Two concepts, such as margin and profit and very few people know in what a difference between them are very widespread in the sphere of trade activity. They allow to give an adequate assessment and to carry out the analysis of financial result of activity of the organization.
Some economists are convinced that these two concepts equivalent, but actually the margin differs from profit, and than it is necessary to consider in more detail.
What is shown by a margin?
The margin is a difference between indicators of profit of the organization and product cost. Often such concept as gross profit meets.
So, as the margin is considered: from revenue the prime cost of goods is taken away.
Often the margin is expressed in monetary units. This indicator shows how many real profit was got by the organization from selling of the goods, apart from variable costs for its production.
The margin is very important in this sphere, besides she allows to estimate efficiency and activity of the enterprise as:
- With its help it is possible to create funds of development of the enterprise.
- From what size it will be, the end result of activity of the enterprise characterizing profit depends.
- Margin coefficient – the profit relation to revenue. If to increase the received indicator by 100%, then as a result it is possible to receive profitability of sales that is an important element in production activity assessment.
- The value expressed as a percentage pays off so: from revenue the prime cost is taken away or prime cost is multiplied by 100. Thus, it is possible to receive a margin on goods of the company in %.
Margin of net profit
Any commercial organization which recently began the activity wants to have profit. Profit represents the monetary result received as a result of in the ratio income minus various expenses.
To get profit, it is necessary to calculate it by such formula:
Profit = Revenue – the Prime cost of goods – Commercial costs – Expenses – the Paid % + the Received % - Expenses + Income
On the value received as a result the income tax, as a result forming net profit is accrued.
It should be noted, as the margin and profit have huge value in the analysis of receipt of income and expenses which arise in process of the organization. Thanks to them it is possible to estimate production and trade activity adequately.
The margin is applied not only in the sphere of trade, but also it is used in bank and exchange business. The trade margin is the most widespread term in many fields of activity. Some people are convinced that the trade margin differs in nothing from a trade margin. But it not so.
The margin is the relation of profit to the market value of goods. The margin is calculated based on the ratio of the profit of products to its prime cost.
Difference of profitability and margin
What is a margin to us it is already known. But it should be noted that without indicators of profitability it is impossible to carry out the analysis of efficiency of activity of the enterprise. Profitability is an indicator which shows what income is gained by firm from the activity.
Definite answer to a question by what formula the profitability is calculated, no, the individual calculations are applied to each type of activity.
But in it is general it is possible to tell that profitability is a ratio between expenses of the enterprise and the profit got as a result. That is both income, and expenses of firm are considered. Business which on reporting results makes profit – profitable and has the right for existence.