Getting To Know The Types Of Margins In Business And How To Calculate It

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YOGYAKARTA Margin is a term used to define the difference between production costs or cost of purchase (HPP) at the selling price in the market. This means that the margin is used to measure the profitability of a change.

Well, types of margins in businesses commonly used to measure the profits of a company are divided into three, including gross profit margins, operational profit margins and net profit margins.

For more details, see the summary of information about the types of margins in the following article.

The first types of margins are gross profit margins. Gross profit margin is a financial ratio that calculates the company's gross profit after reducing the direct cost of goods production.

Calculation of profits can be used as an evaluation material when the company owner wants to suppress or efficiency operational costs.

Gross profit margin is obtained by reducing revenue (revenue) at a cost of goods sold (HPP), then divided into net sales

For more details, pay attention to the following margin gross profit calculation formula:

Gross profit margin = (direct-production income) / gross income) x 100%

The high gross profit ratio indicates that the company operates well, and vice versa.

By knowing gross profit margin, the company can see which areas are injuring improvements, increasing productivity, or permanently closing areas that harm the production process.

The second type of margin is the operating profit margin. This is a percentage of profit that the company gets from core operations after deducting operational costs such as employee salaries, overhead costs, and other operational costs.

Calculation of operating profit margins can be carried out with the following formulas:

Operating profit margin = (operational/income) x 100%

The greater the operating profit margin rate, the more efficient the company is in managing operating costs and generating profits from its operating income.

On the other hand, low operating profit margins indicate a challenge in generating sufficient profit or an imbalance between income and operational costs.

The third type of margin is net profit margin. This is the type of profit that is most often monitored, but best describes the company's profit conditions.

Net profit margin shows the percentage of net profit obtained from each operating income.

The following is the formula for calculating net profit margins:

Net profit margin = (total revenue cost of goods sold tax other costs) / total income) x 100 percent

High net profit figures show that companies are very effective in managing costs and resulting in higher net profit than revenue.

In contrast, low net profit margins indicate challenges in producing net profit or high cost pressure.

At the end of the period, Pharmacy Salam Sehat, which sells medicines and medical devices, has the following financial reports:

From the data above, calculate gross profit margins, operational profit margins, and net profit margins

Gross Profit Margin

= (IDR 100,000,000 IDR 60,000,000) / IDR 100,000,000 x 100%

= 0.4 or 40% (in the form of percent)

Operational profit margin

= (Rp30,000,000 / Rp100,000,000) x 100%

= 0.3 or 30% (in the form of percent)

Net Profit Margin

= (Rp20,000,000 / Rp100,000,000) x 100%

= 0.2 or 20% (in the form of percent)

Thus informs about the types of margins and how to calculate them. Hopefully this article can add insight to the loyal readers of VOI.ID.