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'.
Profit Margin looks at how much of Sales revenue remains as profit after all costs and expenses are paid.
Ratio: Gross Profit as a percentage of Sales
Calculation: Operating Income as a percentage of Sales
Profitability or Return on Sales(ROS)
Calculation: Net Income as a percentage of Sales
People will think of profit margins at different points on the Income Statement. Production might look at Gross Margin while operations might look at Operating Margin; the Finance Department looks at Return on Sales.
We use ‘margin’ to denote a percentage (of Sales). Some people use ‘margin’ to mean the same as Contribution. Other people use it to mean the same as Gross Profit.
| For a DIY Income Statement Calculator, including the different 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.