What is the difference between profit margin , gross margin , and revenue ?
In: 135
Good lordy. So it’s easier to go in reverse order to how you listed things, with a couple of additional terms added in, like Cost of Goods sold (COGS), Gross profit and Net Profit; The terms are useful in the subsequent explanation, it also makes the formulas easier as each steps provides a figure needed for a subsequent step.
Revenue : This is the total amount of money you are getting for the stuff you sell. (Total money received from sales = Revenue)
Cost of Goods Sold (COGS) : This is simply what was paid for the items that were sold (If there is stock in hand, then it is calculated, for a given period, as Opening Stock + Items bought for resale – Closing Stock.)
Gross Profit : This is the amount of money you made from selling items before taking other costs into consideration : Revenue – COGS
Gross Margin : Gross Profit divided by Revenue, usually expressed as a percentage
Net Profit or Loss : This is what you actually made or lost from the business endeavors. It’s what is left of the gross profit after all other business expenses & incomes have been added or deducted. (Gross profit + other income – all expenses)
Profit Margin : Net Profit divided by the Revenue, also usually expressed as a percentage.
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