The purpose of this page is to explain the indicator about profit margin among the indicators used in the analysis of companies and stocks.
Gross profit margin is the ratio of gross profit divided by net sales.
Gross profit margin = Gross profit Net sales
Since gross profit is the difference between net sales and cost of sales, the above formula can be transformed into the formula below.
Gross profit margin = 1 - Cost of Sales Net Sales
The second term on the right side of this equation is the ratio of cost of sales to net sales, and the smaller the ratio, the higher the gross profit margin.
That is, the gross profit margin represents the added value of the company's merchandise, products, and services, or the purchasing / manufacturing efficiency.
Gross profit margin reflects the added value of the company's merchandise, products, and services, or the purchasing / manufacturing efficiency.
Therefore, the high gross profit margin represents the high price competitiveness of the company.
Average of the gross profit margin varies by industry, so it is often used to compare companies in the same industry.
The high gross profit margin in the same industry indicates that the company is price competitive in the industry.
On the other hand, even if the gross profit margin is low, if the sales are large, it is possible to raise the gross profit to the same extent.
In such cases, the company has an advantage in market share.
However, if the profits are the same, it is usually desirable for stakeholders such as shareholders or employees to keep high profit margin.
Of course, it is ideal that both net sales and gross profit margin are increasing.
Net sales and gross profit, required to calculate the gross profit margin, are listed in the income statement.
Here, an example of calculating the gross profit margin is shown using the following income statement.
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Net sales 2,500 Cost of sales 1,500 Gross profit 1,000 ・・・ Net income ・・・ |
Gross profit margin is the ratio of gross profit to net sales, and it can be calculated as follows.
Although the amount described on the income statement has a unit, it's a ratio so you don't have to care about it.
Therefore, in the example of the income statement above, the gross profit margin is 0.4, which is 40% as a percentage.
Operating profit margin is the ratio of operating income divided by net sales.
Operating profit margin = Operating income Net sales
The operating profit margin can be resolved into two factors as shown in the following formula.
Operating profit margin = Gross profit Net sales × Operating income Gross profit
The ratio calculated as the gross profit devided by the sales is the gross profit margin, which reflects the production efficiency for the manufacturing industry and the purchasing efficiency for the retail industry.
The ratio calculated as the operating income devided by the gross profit represents the efficiency other than production, such as management or sales.
That is, a high operating profit margin means that production or purchasing efficiency and sales efficiency are high.
A high operating margin indicates that the cost for a company to generate a certain amount of sales is low as a whole.
Therefore, the operating profit margin is a simple indicator of the company's competitiveness.
Net sales and operating income, required to calculate the operating profit margin, are listed in the income statement.
Here, an example of calculating the operating profit margin is shown using the following income statement.
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Net sales 2,500 ・・・ Operating income 250 ・・・ Net income ・・・ |
Operating profit margin is the ratio of operating income to net sales, and it can be calculated as follows.
Although the amount described on the income statement has a unit, it's a ratio so you don't have to care about it.
Therefore, in the example of the income statement above, the operating profit margin is 0.1, which is 10% as a percentage.