Margins, that is. Sure, they are the white space on a printed page around the text. But more importantly, they are the best way to measure profitability in your company.
You really need to be aware of your margins. It represents the percentage of sales you’ve turned into profit, or, put more simply, how many pennies you made on each dollar of sales.
Keep in mind there are several types of margins:
- Gross profit
- Operating profit
- Tax profit
- Net profit
All of these are reflected on a company’s income statement.
Gross margin is what’s left after subtracting direct costs of the product or service from the sales revenue.
Operating profit or margin is what’s left after subtracting operating costs from gross margin.
Then pre-tax margin results when debt costs and unusual charges are deducted from operating profit.
Deducting taxes from that number results in the net profit margin.
It’s part of a larger process, but an important statistic (or set of statistics) to track. Without profitability, your company runs in the red.
Make sure those white spaces are wide!
For more on how to manage your finances, call or write to us. TFO Solutions is dedicated to helping entrepreneurs and business owners with their financial strategy from the back office to the boardroom.
*photos courtesy of Unsplash: Frank Busch, photographer) and Paul Maynard