The Income|Outcome^® Contextuary

This number describes the percentage of income which is left over after Costs & Expenses are deducted from Sales.

People will think of profit margin at different points on the Income Statement. Production might look at Gross Margin; operations might look at Operating Margin; the finance department looks at Return on Sales. See the different examples of Margins below:

GROSS MARGIN

Ratio: Gross Profit as a percentage of Sales

Example: The Round Number Company Sales = 200; Gross Profit = 120, Gross Margin = 120/200 = 60%

OPERATING MARGIN

Ratio: Operating Income as a percentage of Sales

Sales = 200; Operating Income = 48, Operating Margin = 48/200 = 24%

RETURN ON SALES (ROS)

Ratio: Net Income as a percentage of Sales

Sales = 200; Net Income = 30, Return On Sales = 30/200 = 15%

“What do you mean by that?”

Some people use Margin to mean the same as Gross Profit.