So what do these types of profit margins represent,

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Among the profitability indicators and ratios used in business, the profit margin is probably the most used. It allows to relate the company's earnings to its charges and expenses to obtain a percentage . This represents the units of income considered after deduction of all costs, such as operating expenses, employee salaries, taxes, interest and production/marketing costs...

This standardization of profit calculation makes it easy to compare a company's performance with its competitors, in order to position oneself and make informed decisions. There are several types of profit margins to approach the issue from different angles and focus managers' attention on a particular economic aspect of their business.

Types of Profit Margin
Whether net , gross or azerbaijan phone data operating, the profit margin can be calculated differently depending on the parameters taken into account in the formula, in order to highlight the company's performance in relation to certain expenses.

To fully understand how to calculate a profit margin and which parameters to take into account, we must first agree on the definition of these parameters in order to standardize the calculations. Thus, when we talk about turnover, we will be talking about the total income generated by the sale of goods or services. The cost of goods sold represents the costs directly associated with the production of the good or service. The operating profit corresponds to the turnover from which we subtract the operating costs of the infrastructure, without taking into account any other expenses (tax, etc.). Finally, the net profit, the most important, is the one from which we subtract all expenses (operation, taxes, charges, etc.).

and more importantly, how can we use this information?

Net profit margin
This is the most widely used financial indicator . It expresses the profit of a company remaining after all other expenses have been covered: production costs, operating costs, but also bank interest following an investment, taxes, various duties, and all the minor charges, the list of which can be very long. It is the best indicator of the overall profitability of a company and is very popular when it comes to comparing several companies, before making an investment or a buyout, for example.

Gross profit margin
Compared to the net profit margin, the gross margin rate expresses the profit on production. Therefore, we consider the profit after deducting only the production costs. We do not take into account the operation or any other additional costs. This indicator is used to determine the profitability of the production of a good or service, to know if it can be improved. Many decisions regarding the production chain and the way in which the company will produce its goods in the future will depend on it.

It is not uncommon for a company, which nevertheless makes large net profits , to realize after calculating the gross margin that one of its products is loss-making. It is then up to the decision-maker to rectify this or, if the product is a showcase for the brand , to accept the gross deficit, which will then be offset with another product or service. For example, some loss-making products of major brands are offset by premium services whose gross profit is very high.