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What is Margin?

Margin (Definition)

In business, margin is the difference between revenue and expenses, and they essentially show how efficient your business is. Businesses usually keep track of their gross profit margins, operating margins, and net profit margins to determine how much money they make from each sale. The gross profit margin is the relationship between gross sales revenue and the direct costs of making those sales. It’s a way to determine how well a company is doing and a higher gross profit margin is better as it shows the company is making money from revenue. To figure out gross profit margin, you divide gross profit by total revenue.

The operating margin focuses on costs that aren't directly related to making money, such as are research and development, marketing campaign costs, general and administrative costs, and depreciation and amortisation. The operating margin shows how well a company can manage its indirect costs. To determine the operating profit, you subtract operating expenses from gross profit.

Net profit margin looks at the last part of the income statement and the company's nett earnings after all its expenses are considered. It shows how well a company can pay its debts and taxes. When you subtract interest and taxes from operating profit, you get net profit.

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