Profit margins

• Gross Profit Margin (GPM)


  Measures gross profit as a percentage of revenue
• Calculating Gross Profit Margin

  Gross Profit / Revenue x 100
• Improving GPM

  Increasing prices or reducing the direct cost of sales
• Calculating Operating Profit Margin

  Operating Profit / Revenue x 100
• Improving OPM

  Increasing prices or reducing the cost of sales or operating expenses
• Profit for the Year (Net Profit) Margin

  Measures the profit for the year as a percentage of revenue
• Calculating Profit for the Year Margin

  Profit for the Year / Revenue x 100
• Profit for the Year Margin


  • Takes into account most expenses (apart from tax) so gives the best overall impression of how profitable a business is
  • A high profit for the year margin is attractive to shareholders, because it can indicate that they may receive high dividends