This glossary uses Visual Finance™ to bring financial terms to life. Each example shows data from the Round Number Company, a fictional business with simplified figures to make learning easier. For more details, visit 'How to Read Visual Finance'.
This number describes the percentage of income which is left over after Costs & Expenses are deducted from Sales.
People will think of profit margin at different points on the Income Statement. Production might look at Gross Margin; operations might look at Operating Margin; the finance department looks at Return on Sales. See the different examples of Margins below:
GROSS MARGIN
Ratio: Gross Profit as a percentage of Sales
Example: The Round Number CompanySales = 200; Gross Profit = 120, Gross Margin = 120/200 = 60% |
OPERATING MARGIN
Ratio: Operating Income as a percentage of Sales
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Sales = 200; Operating Income = 48, Operating Margin = 48/200 = 24% |
RETURN ON SALES (ROS)
Ratio: Net Income as a percentage of Sales
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Sales = 200; Net Income = 30, Return On Sales = 30/200 = 15% |
Some people use Margin to mean the same as Gross Profit.
| For a DIY Income Statement Calculator, including margins, go here. |
The above is our generic explanations of common corporate financial terminology. Actual meanings can vary widely from company to company; in order to have the correct internal definition you need to ask your Finance Department, "What do you mean by that?"
term list.