Marginal profit

margin is seen as a key factor in the formation of prices, the profitability of marketing costs.It fully reflects the maximum return on sales, as the difference between cost and selling price.As a rule, the margin is expressed as the profit per unit product or as a percentage of the selling price.

There is a measure of the difference between the total revenue from sales of goods and variable costs of the company.It is called the "gross margin".On its basis it is impossible to assess the overall state of finances in the company or a specific activity.However, this figure is used to calculate a number of other variables.For example, the ratio of the amount of revenue it generates a gross margin ratio.

difference between the total profit from the sale and variable costs is the basis for the determination of net income in the company.Thus, the gross margin is seen as an analytical value that characterizes the performance of the entity as a whole.This index is formed on the basis of the employee invested in the production of products (services).

gross margin reflects the surplus generated by the goods in cash.This measure, in addition, may be considered non-operating income from the business operations of the organization.For non-sales income includes the balance of operations on the description of payables and receivables, the implementation of activities within the housing sector management and operations of non-industrial types of services, and so on.

profit margin - the difference between income from the sale of goods produced by the company (excluding excise and VAT) and variable production costs.Sometimes this figure is called the amount of coverage.In this case, the profit margin considered as part of the revenue, which is the creation of profit and compensation of fixed costs.The higher the amount of coverage, the faster will be reimbursed the cost, the higher the income, which the company will receive in the end.

Profit Margin (TRm) can be calculated per unit of produced and sold goods.This calculation provides information about increasing income through production of each new product unit.

profit margin.Formula

TRm = TR - TVC, where variable costs - TVC, total income - TR.

If sales of the company reimburses all costs is not ensured income, the profit margin is equal to the fixed costs.

Revenue from sales of goods exceed the variable costs.In this case the profit margin of a certain size.

When a company engaged in production of wide range of products, according to this indicator, you can identify the most promising in relation to lucrative types of goods.At the same time determined and unprofitable (or losing) for the enterprise products.In other words, it is possible to identify which of them make the largest contribution to the revenue of the enterprise as a whole, and which bring the greatest loss.To do this, determine what portion of the profit margin in revenue for each individual product type.

magnitude calculation depends on variable costs and prices - quite volatile variables.Practice shows that the increase in the index for the specified income should either increase the margin on the goods, or to sell more of its volume, and ideally - implement and that, and another.

Thus, the profit margin should be regarded as a permanent income and expenses, contributed to the formation of net income and compensation of fixed costs.