Gross profit margin = (revenue - cost of goods) / revenue
As a simple example, if a company sells goods for $100, and the cost to the company to produce the goods is $70, the company's gross profit margin is 30%. Gross profit margin provides a general indication of a company's profitability, but it is not a precise indication.
Read more: What is the difference between gross profit margin and net profit margin?
Net profit margin = (revenue - cost of goods - operating expenses - other expenses - interest - taxes) / revenue
Read more: What is the difference between gross profit margin and net profit margin?
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As an example of a profit margin calculation, suppose firm A made a profit of $10 on the sale of a $100 television set. Dividing the dollar amount of earnings by the product cost, that firm's profit margin would be .10 or 10 percent, meaning that each dollar of sales generated an average of ten cents of profit. Thus, the profit margin is very important as a measure of the competitive success of a business, because it captures the firm's unit costs.
Three important profitability metrics are called margins: gross margin, operating margin, and net profit margin. Each margin refers to earnings (profits) as a percentage of sales revenues. Note that the terms profits, earnings, and income are often used interchangeably.
DEFINITION of 'Margin'
1. Borrowed money that is used to purchase securities. This practice is referred to as "buying on margin".
2. The amount of equity contributed by a customer as a percentage of the current market value of the securities held in a margin account.
3. In a general business context, the difference between a product's (or service's) selling price and the cost of production.
4. The portion of the interest rate on an adjustable-rate mortgage that is over and above the adjustment-index rate. This portion is retained as profit by the lender.
Read more: Margin Definition | Investopedia http://www.investopedia.com/terms/m/margin.asp#ixzz3x2arCtfb
