The 4 Types of Profit Margins
You can calculate 4 different profit margins with the typical income statement.
Gross Margin = Gross Profit / Net Sales
The gross margin tells you the profitability after deducting COGS but before any other expenses. In short, it shows whether the company is selling the product above its cost.
Operating Margin = Operating Income / Net Sales
The operating margin tells you the profitability after deducting cost of goods sold and operating expenses like rent, selling expenses, and administrative salaries. It is the company’s margin before nonoperating items like interest expense. Thus, if you’re comparing two companies that have different financing structures, you’d want to compare their operating margin since it’s not affected by interest.
EBT Margin = Pretax Income / Net Sales
The EBT (earnings before taxes) margin tells you the profitability after deducting all expenses other than income taxes.
Profit Margin = Net Income / Net Sales
The profit margin tells you the profitability after deducting all the expenses. #Shorts
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