Profit & Margins: key terms, formulas and examples
Profit has layers: revenue minus COGS is gross profit, minus operating costs is operating profit, and after interest and tax is net income. Margins show each as a percent of revenue.
Example
Revenue 200 and COGS 120 give a 40% gross margin.
Takeaway
Watch margins, not just totals; growth with shrinking margins is a warning.
Key terms
- Revenue
- Total money a company earns from sales before costs.
- Gross margin
- Share of revenue left after direct production costs.
- Net income
- What remains after all expenses and taxes.
- EBITDA
- Profit before interest, taxes, depreciation and amortization.
- Operating profit
- Profit from core operations before interest and taxes.
Formulas
Profit margin(R − C) ÷ R × 100
Operating margin(R − COGS − Opex) ÷ R × 100
Gross margin(R − COGS) ÷ R × 100
Net profit marginNI ÷ R × 100
EBITDA marginEBITDA ÷ R × 100
After-tax profitEBT × (1 − t)
Asset turnoverR ÷ Avg A
Equity multiplierA ÷ E
DuPont ROE(NI ÷ R) × (R ÷ A) × (A ÷ E) × 100
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