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How is margin calculated? Profit is the final financial result of business operation

One of the most commonly used terms in macroeconomics is margin. Translated from English word margin means “difference”. What exactly is this term called and what is it used for? We will try to talk about this as clearly as possible.

Introduction

If you turn to Wikipedia, you can find out that margin is the difference between the company’s revenue and the total cost of production. This indicator is absolute; it reflects the overall success of the company in its main and additional activities.

Margin is the difference between revenue and cost of goods

The absolute nature of this indicator allows it to be used only for internal statistics and analysis, so it is not possible to compare branches or companies by margin. To do this, you should use relative indicators, for example, profitability.

What is classic margin?

In micro/macroeconomics, gross profit is the profit that was received taking into account total revenue and total costs for the provision of services/product creation. This term most closely matches the Russian term “total profit received from the sale of all kinds of services or finished goods.”

Please note: The concept of marginal income denotes the difference from the revenue received by the enterprise to the total variable costs of providing a service or producing a product.

When the expression “margin” is used in the financial field, it usually means the difference in interest rates or various securities Oh. Banks also use this concept - for them it means the difference between deposits and loans issued.

Let's look at what margin is in trading and what it depends on. In trade, this concept refers to the amount of interest that is added to the purchase price to make a profit. In any case, the result of the activities of all enterprises is to obtain the maximum margin or profit.

Topics of the material

Good afternoon Today we will talk about margin, which is one of the main tools for analyzing the degree of profitability of a business.

Margin shows how successfully your company is developing, whether you are doing the right thing pricing policy and what is the profitability forecast for your business. And most importantly, it allows you to identify all financial risks in a timely manner and make the necessary management decisions in a timely manner.

Today we will tell you how to correctly calculate the size of the margin, as well as the role it plays in a business built on the production of goods, in the activities of banks and in the brokerage services market.

What is margin in simple words?

To put it simply, margin is nothing more than the difference between the “selling” cost of a product and the amount spent on its production (cost). It shows the size of the organization's net profit in currency or percentage equivalent.

By tracking the dynamics of this indicator over a certain period, you can analyze the state of the business and make a competent financial forecast.

That is why margin is one of the key tools in the financial diagnostics of enterprises.

Margin has great value in insurance financial activities and in the work of stock brokers.

Manufacturing margin

If we talk about enterprises engaged in the production of goods, then, in in this case, margin shows the amount of net profit from the sale of a particular product.

Let's give a simple example. Businessman Ivan Sidorov manufactures and sells wooden chests of drawers to wholesalers. He spends 3,000 rubles to produce one unit of goods, and sells it for 4,600 rubles.

In this case, the margin in monetary terms is 1,600 rubles. You can calculate its size as a percentage. To do this, it is necessary to subtract its cost (3,000 rubles) from the price of the item (4,600 rubles), divide the result by the price of the chest of drawers (4,600 rubles) and multiply the resulting amount by 100. Thus, we see that the margin in this case will be 34.7%.

Now let’s assume that Sidorov decided to evaluate how his business is developing. To do this, just compare the margin on present period with similar figures, for example, two years ago.

If he sees that a couple of years ago the margin was 60%, a year ago 40%, and now 34.7%, then we can safely conclude that the company is in recent years loses income, and therefore profitability.

Of course, things are not so bad for Sidorov and his business is profitable, but the forecast in this case is already unfavorable. In this situation, the entrepreneur must sound the alarm and find the reason for such bleak dynamics: incorrect pricing policy, too high costs, etc.

At the same time, it is important to know that the margin is certainly important element analysis of the financial efficiency of an enterprise, but it cannot be used as the only unit of measurement of its profitability.

There are two reasons for this:

When calculating the margin, many factors that influence the profitability of the enterprise are not taken into account (seasonality, economic situation in the country, etc.);
The concept of “costs” is very broad, and many entrepreneurs give it different meanings.

That is, some economists calculate the margin based on cost consumables used to produce goods. Others take into account absolutely all costs: wages of employees, depreciation of equipment, rent of premises, payment for electricity, etc.

Margin in banking services

In the banking industry, margin is one of the indicators of the profitability of an organization, and is calculated as the ratio of income and expenses of the institution.

Banks and microfinance organizations do not produce any products. They make a profit from loans provided to clients and wise investment of their funds. The main expenses of banks are associated with ensuring the activities of the institution, as well as with the payment of interest to depositors.

That is, the margin here, as a rule, is calculated not per unit of goods (credit), but for a certain period.

To put it simply, the bank, in order to continue to receive good profit, must carefully monitor the ratio of the interest it pays to depositors (expense) to the interest it charges customers who take out loans (income).

That is, main task Banking margin is a measure of how efficiently an institution uses the funds it has.

There are several ways to calculate bank margin. This is often the difference between an institution's total funds and the profits it made during a given period.

Margin on the exchange

Brokers use this indicator to determine the degree of riskiness of transactions carried out by a specific client. To do this, the state of his personal account is analyzed. The main criteria are the starting indicators on the client’s account and the designated minimum.

Brokerage margin is fundamentally different from banking and industrial margins. In this case, the main task of the margin is to show how creditworthy a given client is and whether it is worth providing him with a loan. That is, in brokerage transactions, margin is nothing more than financial history client, and it allows him to quickly receive virtual loans.

If the broker sees that since the start of playing on the stock exchange a person has increased his budget and his income continues to grow, then, if necessary, he will be easily provided with a virtual loan. If, during the time of participation in exchange transactions, the client demonstrated negative dynamics in his personal account, then he, most likely, will not be allowed to “play” in debt.

Thus, it turns out that margin is one of the main financial indicators, which allows you to determine how successful and profitable your business is.

Marginal analysis helps to find the ideal relationship between the costs of producing a product and the price at which it is sold. Moreover, it is margin tracking that allows you to timely identify and assess all risks. That's all, I hope everyone understood what margin is and how to determine it!

Economic terms are often ambiguous and confusing. The meaning embedded in them is intuitively clear, but to explain it in publicly accessible words, without preliminary preparation, rarely does anyone succeed. But there are exceptions to this rule. It happens that a term is familiar, but upon in-depth study it becomes clear that absolutely all its meanings are known only to a narrow circle of professionals.

Everyone has heard, but few people know

Let’s take the term “margin” as an example. The word is simple and, one might say, ordinary. Very often it is present in the speech of people who are far from economics or stock trading.

Most believe that margin is the difference between any similar indicators. In daily communication, the word is used in the process of discussing trading profits.

Few people know absolutely all the meanings of this fairly broad concept.

However to modern man It is necessary to understand all the meanings of this term, so that at an unexpected moment you “don’t lose face.”

Margin in economics

Economic theory says that margin is the difference between the price of a product and its cost. In other words, it reflects how effectively the activities of the enterprise contribute to the transformation of income into profit.

Margin is a relative indicator; it is expressed as a percentage.

Margin=Profit/Revenue*100.

The formula is quite simple, but in order not to get confused at the very beginning of studying the term, let's consider a simple example. The company operates with a margin of 30%, which means that in every ruble earned, 30 kopecks constitute net profit, and the remaining 70 kopecks are expenses.

Gross Margin

In analyzing the profitability of an enterprise, the main indicator of the result of the activities carried out is gross margin. The formula for calculating it is the difference between revenue from sales of products during the reporting period and variable costs for the production of these products.

The level of gross margin alone does not allow for a full assessment of the financial condition of the enterprise. Also, with its help, it is impossible to fully analyze individual aspects of its activities. This is an analytical indicator. It demonstrates how successful the company is as a whole. is created through the labor of enterprise employees spent on the production of products or provision of services.

It is worth noting one more nuance that must be taken into account when calculating such an indicator as “gross margin”. The formula can also take into account income outside of sales economic activity enterprises. These include writing off accounts receivable and accounts payable, provision of non-industrial services, income from housing and communal services, etc.

It is extremely important for an analyst to correctly calculate the gross margin, since enterprises, and subsequently development funds, are formed from this indicator.

In economic analysis, there is another concept similar to gross margin, it is called “profit margin” and shows the profitability of sales. That is, the share of profit in total revenue.

Banks and margin

The bank's profit and its sources demonstrate a whole series indicators. To analyze the work of such institutions, it is customary to count as many as four various options margin:

Credit margin is directly related to work under loan agreements and is defined as the difference between the amount specified in the document and the amount actually issued.

Bank margin is calculated as the difference between interest rates on loans and deposits.

Net interest margin is a key indicator of banking performance. The formula for its calculation looks like the ratio of the difference in commission income and expenses for all operations to all bank assets. Net Margin can be calculated based on all the bank’s assets, and only on those involved in the work at the moment.

The guarantee margin is the difference between the estimated value of the collateral property and the amount issued to the borrower.

Such different meanings

Of course, economics does not like discrepancies, but in the case of understanding the meaning of the term “margin” this happens. Of course, on the territory of the same state, everyone is completely consistent with each other. However, the Russian understanding of the term “margin” in trade is very different from the European one. In the reports of foreign analysts, it represents the ratio of profit from the sale of a product to its selling price. In this case, the margin is expressed as a percentage. This value is used for a relative assessment of the effectiveness of the company's trading activities. It is worth noting that the European attitude towards calculating margins is fully consistent with the basics of economic theory, which were described above.

In Russia, this term is understood as net profit. That is, when making calculations, they simply replace one term with another. For the most part, for our compatriots, margin is the difference between revenue from the sale of a product and overhead costs for its production (purchase), delivery, and sales. It is expressed in rubles or other currency convenient for settlements. It can be added that the attitude towards margin among professionals is not much different from the principle of using the term in everyday life.

How does margin differ from trading margin?

There are a number of common misconceptions regarding the term “margin”. Some of them have already been described, but we have not yet touched on the most common one.

Most often, the margin indicator is confused with the trading margin. It's very easy to tell the difference between them. The markup is the ratio of profit to cost. We have already written above about how to calculate margin.

A clear example will help dispel any doubts that may arise.

Let’s say a company bought a product for 100 rubles and sold it for 150.

Let's calculate the trade margin: (150-100)/100=0.5. The calculation showed that the markup is 50% of the cost of the goods. In the case of margin, the calculations will look like this: (150-100)/150=0.33. The calculation showed a margin of 33.3%.

Correct analysis of indicators

For a professional analyst, it is very important not only to be able to calculate an indicator, but also to give a competent interpretation of it. This is a difficult job that requires
great experience.

Why is this so important?

Financial indicators are quite conditional. They are influenced by valuation methods, accounting principles, conditions in which the enterprise operates, changes in the purchasing power of the currency, etc. Therefore, the resulting calculation result cannot be immediately interpreted as “bad” or “good”. Additional analysis should always be performed.

Margin on stock markets

Exchange margin is a very specific indicator. In the professional slang of brokers and traders, it does not mean profit at all, as was the case in all the cases described above. Margin on stock markets becomes a kind of collateral when making transactions, and the service of such trading is called “margin trading”.

The principle of margin trading is as follows: when concluding a transaction, the investor does not pay the entire contract amount in full, he uses his broker, and only a small deposit is debited from his own account. If the outcome of the operation carried out by the investor is negative, the loss is covered from the security deposit. And in the opposite situation, the profit is credited to the same deposit.

Margin transactions make it possible not only to make purchases at the expense of borrowed funds broker. The client may also sell borrowed securities. In this case, the debt will have to be repaid with the same securities, but their purchase is made a little later.

Each broker gives its investors the right to make margin transactions independently. At any time, he may refuse to provide such a service.

Benefits of Margin Trading

By participating in margin transactions, investors receive a number of benefits:

Possibility to trade on financial markets without having sufficiently large amounts in the account. This makes margin trading highly profitable business. However, when participating in operations, one should not forget that the level of risk is also not small.
Opportunity to receive when the market value of shares decreases (in cases where the client borrows securities from a broker).
To trade various currencies, it is not necessary to have funds in these particular currencies on your deposit.

Risk management

To minimize the risk when concluding margin transactions, the broker assigns each of its investors a collateral amount and a margin level. In each specific case, the calculation is made individually. For example, if after a transaction there is a negative balance in the investor’s account, the margin level is determined by the following formula:

UrM=(DK+SA-ZI)/(DK+SA), where:

DK - cash investor deposited;

CA - the value of shares and other investor securities accepted by the broker as collateral;

ZI is the debt of the investor to the broker for the loan.

It is possible to carry out an investigation only if the margin level is at least 50%, and unless otherwise provided in the agreement with the client. According to general rules, the broker cannot enter into transactions that would result in the margin level falling below the established limit.

In addition to this requirement, a number of conditions are put forward for conducting margin transactions on the stock markets, designed to streamline and secure the relationship between the broker and the investor. To be negotiated maximum size losses, debt repayment terms, conditions for changing the contract and much more.

Understand all the diversity of the term "margin" for short term quite difficult. Unfortunately, it is impossible to talk about all areas of its application in one article. The above considerations indicate only key points its use.

The concepts of markup and margin, which many have heard, are often denoted by one concept - profit. IN general outline, of course, they are similar, but still the difference between them is striking. In our article, we will understand these concepts in detail, so that these two concepts are not “combed with the same brush,” and we will also figure out how to correctly calculate the margin.

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What is the difference between markup and margin?

Margin is the ratio between the price of a product on the market to the profit from its sale, the main income of the company after all expenses measured in percentage. Due to the calculation features, the margin cannot be equal to 100%.

Extra charge- this is the amount of the difference between the product and its selling price at which it is sold to the buyer. The markup is aimed at covering the costs incurred by the seller or manufacturer in connection with the production, storage, sale and delivery of goods. The size of the markup is formed by the market, but is regulated by administrative methods.

For example, a product that was purchased for 100 rubles is sold for 150 rubles, in this case:

(150-100)/150=0.33, as a percentage 33.3% – margin;
(150-100)/100=0.5, as a percentage 50% – markup;

From these examples it follows that a markup is just an addition to the cost of a product, and a margin is the total income that the company will receive after deducting all mandatory payments.

Differences between margin and markup:

Maximum permissible volume– the margin cannot be equal to 100%, but the markup can.
Essence. The margin reflects income after deducting necessary expenses, and the markup is an increase in the cost of the product.
Calculation. The margin is calculated based on the organization’s income, and the markup is calculated based on the cost of the goods.
Ratio. If the markup is higher, then the margin will be higher, but the second indicator will always be lower.

Calculation

Margin is calculated using the following formula:

OTs – SS = PE (margin);

Explanation of indicators used when calculating margin:

PE– margin (profit per unit of goods);
OC
JV– cost of goods;

Formula for calculating margin or percentage of profitability:

TO– profitability ratio as a percentage;
P. – income received per unit of goods;
OC– the cost of the product at which it is sold to the buyer;

In modern economics and marketing, when we're talking about Regarding margin, experts note the importance of taking into account the difference between the two indicators. These indicators are the profitability ratio from sales and profit per unit of goods.

Speaking about margin, economists and marketers note the importance of the difference between profit per unit of goods and the overall profitability ratio for sales. Margin is an important indicator, as it is a key factor in pricing, the profitability of marketing spend, as well as analyzing client profitability and forecasting overall profitability.

How to use a formula in Excel?

First you need to create a document in Exc format.

An example of a calculation would be the price of a product at 110 rubles, while the cost of the product will be 80 rubles;

Markups are calculated using the formula:

N = (CP – SS)/SS*100

Gde:

N– markup;
CPU– sale price;
SS– cost of goods;

Margins are calculated using the formula:

M = (CP – SS)/CP*100;

M– margin;
CPU– sale price;
SS– cost;

Let's start creating formulas for calculations in the table.

Calculation of markup

Select a cell in the table and click on it.

We write the sign corresponding to the formula without a space or activate the cells using the following formula (follow according to the instructions):

=(price – cost)/ cost * 100 (press ENTER);

At correct filling in the margin field the value should be 37.5.

Margin calculation

=(price – cost)/ price * 100 (press ENTER);

If you fill out the formula correctly, you should get 27.27.

When receiving an unclear value, for example 27, 272727…. You need to select in the “cell format” option in the “number” function the right number decimal places.

When making calculations, you must always choose the values: “financial, numerical or monetary”. If other values are selected in the cell format, the calculation will not be performed or will be calculated incorrectly.

Gross margin in Russia and Europe

The concept of gross margin in Russia refers to the profit earned by an organization from the sale of goods and the variable costs of its production, maintenance, sales and storage.

There is also a formula to calculate gross margin.

It looks like this:

VR – Zper = gross margin

VR– the profit the organization receives from the sale of goods;
Zper. – costs of production, maintenance, storage, sales and delivery of goods;

This indicator is the main state of the enterprise at the time of calculation. The amount invested by the organization in production, on the so-called variable costs, shows marginal gross income.

Gross margin, or margin in other words, in Europe, is a percentage of the total income of an enterprise from the sale of goods after paying all necessary expenses. Gross margin calculations in Europe are calculated as percentages.

Differences between exchange and margin in trading

To begin with, let's say that such a concept as margin exists in different areas, such as trading and stock exchange:

Margin in trading– a fairly common concept due to trading activities.
Exchange margin– a specific concept used exclusively on exchanges.

For many, these two concepts are completely identical.

But this is not so, due to significant differences, such as:

the relationship between the price of a product on the market and profit - margin;
the ratio of the initial cost of goods and profit - markup;

The difference between the concepts of the price of a product and its cost, which is calculated using the formula: (price of the product - cost) / price of the product x 100% = margin - this is exactly what is widely used in economics.

When calculating using this formula, absolutely any currencies can be used.

Use of settlements in exchange activities

When selling futures on an exchange, the concept of exchange margin is often used. Margin on exchanges is the difference in changes in quotes. After opening a position, margin calculation begins.

To make it clearer, let's look at one example:

The cost of the futures that you purchased is 110,000 points on the RTS index. Literally five minutes later the cost increased to 110,100 points.

The total size of the variation margin was 110000-110100=100 points. If in rubles, your profit is 67 rubles. With an open position at the end of the session, the trading margin will move into the accumulated income. The next day everything will repeat again according to the same pattern.

So, to summarize, there are differences between these concepts. For a person without economic education and work in this field, these concepts will be identical. And yet, now we know that this is not so.

Calculations are made to control the company's activities various types margin, an indicator that reflects how profitable the production of a product is. Below we will describe the formula for calculating margins in various areas.

Margin (literal translation from French - difference, advantage) is the difference between cost and price. This term is often used to replace the concept “”. The concept of "margin" is used in industrial production, banking, stock exchange operations, trade. In the work of banks, the value determines the profitability/unprofitability of a financial transaction. Calculations are carried out to determine the gross and percentage indicators.

To facilitate calculations, financiers use a marginality ratio. It shows the profitability of the business and the success of the bank. In the financial industry, the indicator reflects the difference between lending and deposit rates. To increase deposit rates for customers, the bank raises lending rates. Otherwise, the bank will incur losses. The indicator is expressed in % and monetary equivalent. In banking, it can be 25% - the ratio of the loan amount to the collateral value. It never exceeds 100%.

There is a calculation of net margin, which shows the profitability of a business. This is the net profit that remains after paying all expenses. The operating form is calculated as the share of operating profit in the company's cash turnover.

Formula for marginal profit for banks

To monitor the success of banks, the profitability of financial transactions is calculated. There are 4 types of indicators in the work of banks:

The credit amount is determined as the difference between the amount specified in the credit agreement and actually received by the client.
The guarantee is the difference between the collateral and the loan amount issued to the client.
Net interest form is the main indicator of the bank’s activities. When calculating the value, all assets are taken into account financial institution. The value is calculated using the formula:

Net interest margin = (income - expenses) / assets

In banking terminology, margin also means a secured loan. Bankers distinguish between a simple loan and a margin loan. Unlike a simple loan, a margin loan is greater than the value of the collateral. The first one is given on collateral that secures the loan amount. In the second case, the amount of the deposit smaller size loan or financial transaction. The standard share of the indicator is 25% of the loan amount.

In banking, margin is the difference in exchange rates, interest rates, and securities. The purpose of the bank's activities is to make a profit from the difference in indicators. The higher the value, the more profitable banking operations are.

Calculation of gross and percentage form

Marginality can be gross or percentage. The gross indicator reflects the performance of the company. It is formed on the basis of labor costs and provision of services. The gross value does not include funds for rent, staff salaries, and utility costs.

Gross indicator is the difference between profit and labor costs. Gross margin shows the level of profit from . An organization is considered to be operating successfully if the gross value is 50-60%.

Experts distinguish between the concept of gross margin for Russia and in Western countries.

Formula for calculating gross margin in Russia:

Gross contribution margin = revenue – variable costs

This is the marginal profit that is used to calculate financial transactions. Marginal income does not reflect the state of the organization; it demonstrates the costs of paying fixed costs and generating income.

Or gross margin = revenue – full cost

In Europe, the indicator is calculated in %.

Interest margin is the relationship between costs and income. The value shows the share of costs in relation to profits.

Rules for calculating margins in the video:

It is calculated like this:

Percentage margin = total cost / revenue
Or percentage contribution margin = variable costs / revenue

For Russia, margin is income, for Europe it is a percentage indicator of activity.

How is margin calculated as a percentage in the Russian Federation?

To determine the margin in % terms, the following calculation is made:

Margin = net profit / income x 100

If the value is 30%, this means that out of every ruble of income, 30 kopecks are net profit, and 70 kopecks are the company’s expenses. Margin calculation shows the profitability of the enterprise. This is an indicator of income received from financial investments. In fact, margin is profitability.

Margin ratio

The marginality ratio is the ratio of gross profit to revenue. In percentage terms, this is the work of the organization. The higher the margin, the more efficiently the institution operates, the more profit the organization receives. Development fund calculations are made based on the marginality ratio.

The marginality ratio is used for enterprises that create several types of products. The calculation of the indicator determines the most profitable and unprofitable type of product. Based on calculations, decisions are made to reject unprofitable goods or change technology, increase or decrease the output of goods.

Sales margin calculation

Before introducing a new product to the market, the profitability of sales is calculated. To do this, a calculation is made of the optimal markup on the product that provides the expected profit. Counting is done on different period– month, quarter, year. On initial stage operational and monthly profitability monitoring is carried out. After production stabilizes, calculations are carried out once a year.

Profit margin

Marginality takes into account the cost of production, excluding the costs associated with doing business. Profit takes into account costs at all stages of doing business. Therefore, profit is less than margin. As margins grow, so do profits. In relation to profit, margin is profit divided by the market value of the product.

Income shows the final result of the organization’s work, margins determine the price. Based on it they do:

marketing cost calculations
analyze customer flow
calculate income level

Commercial activity involves making a profit. Margin is the most striking measure of the success of an enterprise.

Level of medium and large margins

At the start of a new enterprise, part of the funds is allocated for the development of the organization. At this stage of work, the margin is lower than statistical. In some cases, the company operates at a loss. After bringing the enterprise to the planned level, profits increase. The organization ceases to be unprofitable and becomes profitable.

Financiers distinguish between medium, small and large profitability. It is generally accepted that an enterprise is operating normally if the margin is at least 10%. This indicator is considered to be average. If the enterprise indicator is less than 10%, measures are taken to increase the level of profitability.

20 -25% is an indicator of good performance of the organization. This is a big margin. According to statistics, the average profitability of a successful enterprise is 11-20%.

Margin or trading margin

When the margin is calculated in %, beginners confuse it with a markup. Margin is the ratio of the difference between the selling price and the cost to the selling price. Markup is the ratio of the difference between the selling price and the cost to the cost. In monetary terms, these values are the same. In percentage terms they differ.

: a product was bought for 50 rubles, sold for 150. Profit is (150 – 50) / 50 = 2 x 100% = 200%.

Margin calculation: (150 – 50) / 150 = 0.66 x 100% = 66%.

Video about the difference between these two indicators:

Table 1. Differences between margin and markup.

From a market point of view, the amount of the premium is not limited by anything. Some countries have regulations governing the amount of the premium.

Indicator analysis

By studying marginality, they get a complete picture of the organization’s performance. It shows how profitable/unprofitable the enterprise is. Using the indicator, the following is determined and controlled:

profitability of the work as a whole and of each project separately
the impact of employee remuneration on the profitability of the enterprise
the most profitable customers
increase or decrease in profitability
most expensive projects
how much does each service cost?

Profitability analysis allows you to respond in a timely manner to a decrease in profitability and increase the cost of services. If the need arises, unprofitable projects are abandoned.

For an accurate picture, a quarterly figure is calculated. If the enterprise operates stably, annual payments are limited.

For normal operation For any enterprise, calculation and analysis of marginality is necessary at every stage. It allows you to respond in a timely manner to a decrease in profitability, form a development fund, and correctly set a premium for goods (services).

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