Calculating the profits of a business
In a business, the businessmen will get either profits or loss, whether it may be a large enterprise or small enterprise. It is an important process to calculate the profits earned from the business so that they can work even more hard to yield more profits than the last time. There are various methods of calculating the profits. Let us discuss it in this article.
The margin of profit:
The margin of profit is calculated to calculate the profits of the company accurately. It can be evaluated by the cost which was spent to serve the customers.
The formula to calculate the profit of margin:
There is a formula available to calculate the profit of margin. But there are three types of margin.
- Gross profit
- Operating profit
- Net profit
Gross profit is mainly based on the cost of production and it will be usually calculated by the gross profit. The gross profit is the difference between the revenue of goods and the cost of sold goods.
Gross profit margin = Revenue of goods – the cost of goods sold
For example, if the revenue of goods is 800 and the cost of the sold goods is 200, then the gross profit margin is just 600 that is 800-200.
Operating profit margin:
When the costs are highly spent on the operation of goods, then it will definitely make an impact on the operating profit margin. Because the operating profit margin is the value of total revenue of goods minus the cost of sold goods, expensed on operations of goods, amortization, and depreciation. This will also include the daily expenses made on the goods, which is from overhead to administration.
Net profit margin:
As the name sounds, the net profit margin can be calculated from the net profit. It is the value of the total revenue of goods minus the cost of sold goods, interest, operations expenses and taxes.
For example, if we have revenue of goods as 9000 and the operations expenses is 1000 and the taxes we paid is 2000, then the net profit we get is 6000 that is 9000-1000-2000.
Thus concluding that the profit determines the overall growth of the business and it motivates the businessmen to put more and harder work and effort to reach great heights. Getting profits always is not an easy thing, because business will give an outcome of both profit and loss. So, the businessmen should always give their best in all their endeavors to get profits.