What does margin mean?
What does margin mean?
The term margin is used in trading, stock exchange, insurance and banking practice to indicate the difference between the prices of goods, shares, interest rates. This is an analogue of the concept of profit.
Margin in trading activities
The margin can be expressed both in absolutevalue (in the ruble equivalent), and in percent (as a coefficient of profitability). In the latter case, it is calculated as the ratio of profit (the difference between price and cost) to the price. It is necessary to distinguish margins from trading margins. The latter represents the ratio of the difference between price and cost to cost. In absolute terms, the margin is the difference between the selling price and the cost price.Margin = ((price - cost price) / price) * 100%.The margin is a key factor in the analysispricing, efficiency of marketing expenses, profitability of clients. Often the analysis of the company's activities is based on the gross margin. It is calculated as the difference between the company's revenue and variable costs for the sale of products.
Gross Margin = Revenue from sales of products - variable production costs.The size of the gross margin determines the net profit,from which the development funds are formed. In Europe, the gross margin is understood somewhat differently - as a percentage of the gross sales revenue that remains with the company after its direct production costs incurred. There is also the concept of "profit margin", meaning the share of profit in revenue or profitability of sales.