What is margin in trading in simple words, the difference from profit, revenue and markup. Margin and markup: definitions, difference Margin markup what is

What's the difference between margin and profit?

In any business there are concepts of margin and profit. Some equate them to each other, others argue that they cannot be compared. Both indicators are of strategic importance for the economic success of an enterprise or bank.

Thanks to them, the financial result of the work, the efficiency of using available resources and the overall result are assessed. The definitions of profit and margin can often be encountered when discussing issues of Forex, in banking and other activities related to finance and economics. To understand which indicator shows what, let’s analyze each of them.

What is margin?

This term came from Europe. Translated from English Margin or French Marge, margin means markup. Margin is found in banking and insurance business, commercial transactions and securities transactions, etc. Economists call margin the difference between a company's income and the cost of production. Often the words “margin” are replaced with “gross profit”. The principle of calculating the margin is simple: the cost is subtracted from the amount received. The resulting value indicates how much real money the organization receives from the sale of products without taking into account additional costs.

The importance of margin should not be underestimated. It shows how effective a particular business is. Margin is directly related to the company's income and evaluates its activities.

Bank employees talk about margin when they compare the difference in interest rates on loans and deposits. Relatively speaking, if a bank wants to attract customers with high rates on deposits, then it is forced to offer high rates on loans.

Margin plays a big role in assessing the performance of a company. Net profit will directly depend on its size. Margin is the basis for the formation of development funds. The margin percentage (or markup percentage) will be calculated by the ratio of cost to revenue. If you calculate the gross “dirty” profit to revenue, you will get an important indicator - the margin ratio. The percentage will give you the return on sales, and this is the main indicator of the performance of any organization.

If we take the concept of margin on an exchange, for example, Forex, then it means temporary collateral cooperation. During it, the participant receives the necessary amount to carry out the operation. The principle of margin transactions is that the participant does not have to pay the entire value of the contract. He uses the resources provided to him and a small part of his own money. As soon as the transaction is closed, the income received will go to the deposit on which they were placed. If the deal becomes unprofitable, the loss will be covered by borrowed funds, which will still have to be repaid later.

Nowadays, the “front-margin” and “back-margin” indicators, which are related to each other, have become fashionable. The first indicator reflects the receipt of income from markups, and the second - from shares and bonuses.

Thus, these indicators are calculated during the operation of any company. They formed a separate area of management accounting – marginal analysis. Thanks to margin, the company manipulates variable costs and expenses, thereby influencing the final financial result.

What is profit?

The final goal of any business is to make a profit. This is a positive financial result of the work. A negative one will be called a loss. You can see the difference between margin and profit in the income statement (form No. 2). To make a profit, you need to clear the margin from all expenses. The calculation formula will look like this:

Profit = Revenue - Cost - Selling costs - Management costs - Interest paid + Interest received - Non-operating expenses + Non-operating income - Other expenses + Other income.

The resulting amount is subject to taxation, after which net profit is formed. Then it goes to pay dividends, is put aside in reserve and invested in the development of the company.

If, when calculating the margin, only production costs (costs) are taken into account, then all types of income and expenses are included in the calculation of profit.

In the business process, several types of profit are calculated, but what is important for management is net profit, which shows the difference between revenue and all costs. If revenue has a larger nominal value and is expressed in monetary terms, then all other costs include production costs, tax deductions, excise taxes, etc.

Gross profit reflects the difference between the amount received and production costs excluding taxes and other deductions. In its calculation, it is similar to marginal profit. Unlike gross “dirty” income, marginal takes into account variable expenses, for example, fuel, electricity, wages, cost of materials for production, etc. Those companies that calculate marginal profit look not only at its amount, but also at the speed circulation of money.

What is the difference between profit and margin?

Unlike profit, margin takes into account only production costs, which only add up to the cost of production. Profit takes into account all the costs that arise in the course of doing business. Analysis of the results shows that as the margin increases, the company's profit also increases. The higher the margin, the higher the profit will be. In terms of size, profit is always less than margin.

If profit shows the net result of a business, then margin refers to the fundamental pricing factors on which the profitability of marketing costs, customer flow analysis, and income forecast depends. There is an important rule in management accounting that all changes that occur in revenue are proportional to the gross margin. Margin, in turn, is proportional to the increase or decrease in profits. Economists call the ratio of gross margin to profit the operating leverage effect. It is used to evaluate the effectiveness of available resources and the overall result.

Thus, all indicators of the financial world have their own meaning. Their calculation will be influenced by the methods of analysis and accounting rules used. Correct interpretation of the dynamics of all indicators is necessary for competent planning of business activities. Both margin and profit say a lot about the performance of an organization.
It is recommended that calculations of these indicators be carried out regularly at specified periods in order to compare values and identify patterns. Seeing this or that dynamics, the manager can trace market trends and make the necessary changes and adjustments in the organization’s activities, pricing policy and other aspects that affect the company’s success. The outcome of all work depends on how timely and correctly the margin and profit indicators are calculated and assessed.

What is better to focus on: margin or profit?

These are interdependent indicators. You cannot focus on just one of them. If the preliminary profit value is calculated based on the margin, then the margin size is adjusted based on the profit. Through margin, you can control many components of business processes, such as pricing, which ultimately affects profits. It is impossible to exclude any of these indicators from the financial chain. The outcome could be disastrous. Each company, although it states that the final goal is to make a profit, they might not have achieved it without calculating the potential margin.

What is margin?This term is used quite often in economics, commerce, and trading, but in each case it means slightly different things. Therefore, to avoid confusion and misunderstandings, this article covers all the meanings of the termmargin.

From this article you will learn what it is:
business margin;
margin in trading;
margin trading;

Margin in business

Margin in business is the difference between the price and cost of a product. Margin and markup are sometimes confused. Let's explain the difference using the formulas:

Margin=(sale price-cost price)/sale price*100%

Extra charge=(sales price-cost)/cost*100%

The markup can easily be more than 100%, but the margin cannot be more than 100%, because in a profitable business the cost price is less than the selling price.

Let's look at an example:

Cost, rub.	price, rub.	Markup, rub.	Markup, %	Margin, %
25	50	25	100	50
25	55	30	120	54
25	60	35	140	58

Margin and markup are interrelated; an increase in markup leads to an increase in margin. Knowing the margin, you can calculate what the markup should be and regulate the selling prices of the goods.

For example, an enterprise wants to get a 30% margin with a product cost of 25 rubles. Then the calculations to determine the markup will look like this:

30%=(X-25)/X*100%
0.3X=X-25
25=0.7X

Selling price = 35 rub.
Markup = 10 rub. or 40%

Margin is also called return on sales and can be used to estimate sales growth. If the cost and markup do not change, then only an increase in the number of items sold leads to an increase in the margin.

Margin in trading

Margin in trading is the difference between the sale and purchase prices of securities,, spreads, .

When trading futures, the trader's account is adjusted daily by the amount of variation margin. If the trader makes a profit, then the variation margin is credited to the trading account. If a trader suffers a loss, the variation margin is debited from the trading account. Accrual/write-off occurs during clearing. Clearing (or clearing session) usually occurs once or twice a day, during which time no trading takes place.

The method for calculating variation margin is specified in the instrument specifications on the exchange website. For example,for a futures contract on the RTS index One of the calculation formulas looks like this: fig1

For the RTS index, the minimum price step is calculated using the US dollar exchange rate. This affects the financial result. If the value of the US dollar rises, then the value of RTS index futures falls and vice versa.

Specifications for futures contracts traded on the CME can be found on the Chicago Board of Trade website. exchanges.

Margin trading

Margin trading is trading using borrowed funds provided by the broker. Brokers call margin trading “unsecured leveraged trades” or “uncovered positions in securities and cash.”

Why is margin trading needed?

If a trader has a small starting capital, the broker will be happy to offer to use leverage, because you will pay extra for these operations. For example, BCS offers all clients a leverage of 1:5, Sberbank offers 1:3, with the possibility of increasing to 1:5. These proportions mean that having actually 1000 rubles, a trader will be able to operate with capital of 5000 (3000) rubles.

The following concepts are closely related to margin trading:

CRMS, CPUR, KOUR (more details below)
discount factors or risk levels
portfolio value
initial margin
minimum margin
forced closure or margin call

What is CRMS, CPUR, KOUR

Based on risk levels, brokers divide their trading clients into categories. And they estimate how much funds can be set for margin trading.

CRMS – To clients with With standard at equals Rclaim. Individuals with small start-up capital and lack of experience.
KPUR – To clients with P elevated at equals Rclaim. Individuals with bABOUTmore money from 600 thousand rubles, with bABOUTMore experience from 180 days of active trading.
KOUR – To clients with O myself at equals Rclaim. Legal entities.

For example, here is how the BCS broker explains the division into categories.

The use of borrowed funds for margin trading is a paid service. Brokers indicate the cost of using borrowed funds on the website and in the brokerage service agreement. Example from the Sberbank website:

Brokers take securities as collateral. The list of margin securities is also posted on the broker's website. These are the most liquid securities - “blue chips” - Sberbank, Gazprom, Rosneft, Lukoil.

For each such security, the broker develops discount factors or risk levels. Risk levels are needed to determineinitial and minimum trader margin(what is the initial and minimum margin is a few paragraphs below).

For example, three margin securities of the BCS broker for clients with a standard risk level.

Initial and minimum margin– terms related to the solvency of the trader.

Initial margin = value of the security*initial risk rate for this security

Initial Margin– part of the cost of a margin security that must be in the trader’s trading account. For margin securities you do not have to pay 100%; it is enough to make an initial margin.

Minimum margin = value of the security*minimum risk rate for this security

Photo from the site: http:utmagazine.ru

For the favorable life of the company and the effective functioning of all its financial processes, it is necessary to have all the information on the income, expenses and costs of the company.

Often, various pricing factors are called profit in the same word and lumped together. Let's take a closer look at two such coefficients - margin and markup.

What is margin and markup

Most people believe that there is no difference between margin and markup and often confuse or combine their indicators. Our article will help you understand the difference between markup and margin.

Margin

Economics textbooks present several definitions of margin, and there are even more on the Internet. Let's consider one of them.

Margin is the difference between the final price of a product and its cost.

Expressed as a percentage of the final price for which the product was sold or as the difference in profit per unit of product. First of all, margin is an indicator of profitability.

This term is used not only in trading, but also in stock exchange, banking and insurance practice.

In general usage, the word margin refers to the difference between indicators.

In order to obtain data on the financial activities of an enterprise, the following concepts are calculated:

Marginal income is one of the types of profit that shows the difference between revenue and variable costs. Necessary for drawing conclusions about the share of variable costs in revenue.

Gross margin is the ratio of revenue and fixed or variable costs. Used to analyze profits taking into account costs.

The concept of gross margin differs in Russia and Europe, due to the characteristics of financial systems. In Russia, this is the profit received by the company during the sale of products, as well as variable costs for the purchase of raw materials, production, storage and delivery of goods. Calculated using the following formula:

Gross margin = Income received from sales of products – Costs of production, storage, etc.

To obtain information about the current financial condition of organizations, this indicator is calculated.

In European countries, gross margin is the percentage of the company's total profit from sales of products, after paying all mandatory cash costs.

Interest margin is the ratio of general and variable costs to revenue.

Margin is usually calculated at the end of the reporting period - month or quarter. Companies that are confident in the market make payments once at the end of the year.

The profitability of a product is reflected by such an indicator as margin. It is calculated to determine the magnitude of sales growth and for the most effective pricing management.

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Extra charge

Let's move on to defining the markup. It is used to name several quantities:

The amount added to the original cost of a product when it is sold.
Retailer profit.
The difference between the retail and wholesale cost of products.

The markup can be specified in the contract if the supplier (manufacturer) agrees to additional conditions of the intermediary (buyer).

Established to cover the costs of production, storage and delivery of products.

Its value is set by the end seller, based on the current state of the market, the presence of competitors and the level of demand for the products sold.

It is important to consider the competitive advantages of both the product on the market and the selling organization.

To determine the correct markup, carefully calculate the costs your company incurs. Consider everything: costs of raw materials, production, storage, delivery of goods, and remuneration of employees.

Depending on the sales volume, the markup may vary: for large volumes, the final price is low, for small volumes, the final price is high. To obtain the greatest profit, it is necessary to determine the added value of products that helps maintain a balance between sales volume and product prices.

Correctly established added value covers the funds spent on a unit of goods and brings profit above these costs. This factor makes it clear how much profit is received from the invested funds.

Remember that the current legislation of the Russian Federation for most products does not limit the maximum amount of added value, and allows the company to determine this indicator itself.

These are food products for children, medical products, medicines, catering products in schools, colleges and universities, goods that are sold in the regions of the Far North.

The difference between margin and markup: calculating indicators

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Margin = (Final cost of goods – Cost of goods) / Final cost of goods * 100%

Markup = (Final cost of goods – Cost of goods) / Cost of goods * 100%

Let's look at a clear example:

The cost of the product is 50.
The final price of the product is 80.

We get:

Margin = (80 – 50) / 80 * 100% = 37.5%
Markup = (80 – 50) / 50 * 100% = 60%

From the calculations it follows that the margin is the company’s total profit after deducting all necessary costs, and the markup is the added cost to the cost.

If at least one of these factors is known, then the second can be calculated:

Markup = Margin / (100 – Margin) * 100%
Margin = Markup / (100 + Markup) * 100%

Let’s take a margin equal to 25 as a condition, and a markup of 20, it turns out:

Markup = 20 / (100 – 20) * 100% = 25
Margin = 25 / (100 + 25) * 100% = 20

Photo from the site: pilotbiz.ru

The difference between margin and markup

The margin cannot be 100%, but the added value can.

Margin is an indicator of income after covering mandatory costs. Markup is an additional price for a product.

The calculation of the margin depends on the total profit of the enterprise, and the markup depends on the original cost of the goods.

The higher the markup, the higher the margin, but the second factor is always lower than the first.

Finally

The financial activity of an enterprise is the most important element of its existence.

It is necessary to carry out all the calculations that will help find weak points in the budget and take the right path in pricing.

It is important to know what margin and markup are and how they differ from each other. These indicators are an effective tool for analyzing the financial condition of an enterprise.

Now you know, if your competitors say: “Our company operates with a margin of 150%,” then they do not distinguish between markup and margin. Therefore, you already have one advantage over them.

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Source: http://lady-investicii.ru/articles/biznes/otlichiya-marzhi-ot-naczenki.html

What is margin and how to calculate it? Detailed overview of the concept for beginners + calculation formulas

03/17/2017 To the procurement participant

Hello, dear colleague! In today's article we will talk about such a well-known economic term as margin.

Many novice entrepreneurs, as well as procurement participants, have no idea what it is and how it is calculated.

This term has different meanings depending on the area in which it is used.

Therefore, in this article we will look at the most common types of margin and dwell in detail on margin in trading, because It is this that is of greatest interest to suppliers participating in government and commercial tenders.

1. What is margin in simple words?

The term “margin” is most often found in areas such as trading, stock trading, insurance and banking. Depending on the field of activity in which this term is used, it may have its own specifics.

Margin(from the English Margin - difference, advantage) - the difference between the prices of goods, securities rates, interest rates and other indicators. Such a difference can be expressed both in absolute values (for example, ruble, dollar, euro) and in percentages (%).

In simple words, margin in trade is the difference between the cost of a product (the cost of its manufacture or purchase price) and its final (selling) price. Those. this is a certain indicator of the effectiveness of the economic activity of a particular company or entrepreneur.

In this case, this is a relative value, which is expressed in % and is determined by the following formula:

M = P/D * 100%,

P - profit, which is determined by the formula:

P = selling price - cost

D - income (selling price).

In industry, the margin rate is 20% , and in trade – 30% .

However, I would like to note that the margin in our and Western understanding is very different. For European colleagues, it is the ratio of profit from the sale of a product to its selling price. For our calculations, we use net profit, namely (selling price - cost).

2. Types of margin

In this section of the article we will look at the most common types of margin. So let's get started...

2.1 Gross margin

Gross Margin Gross margin is the percentage of a company's total revenue that it retains after incurring direct costs associated with the production of its goods and services.

Gross margin is calculated using the following formula:

VM = (VP/OP) *100%,

VP - gross profit, which is defined as:

VP = OP - SS

OP - sales volume (revenue);
CC - cost of goods sold;

Thus, the higher the company’s VM indicator, the more funds the company saves for each ruble of sales to service its other expenses and obligations.

The ratio of VM to the amount of revenue from the sale of goods is called the gross margin ratio.

2.2 Profit margin

There is another concept that is similar to gross margin. This concept is profit margin. This indicator determines the profitability of sales, i.e. share of profit in the company's total revenue.

2.3 Variation margin

Variation margin- the amount paid/received by a bank or a participant in trading on an exchange in connection with a change in the monetary obligation for one position as a result of its adjustment by the market.

This term is used in exchange activities. In general, there are a lot of calculators for stock traders to calculate margin. You can easily find them on the Internet using this search query.

2.4 Net interest margin (bank interest margin)

Net interest margin- one of the key indicators for assessing the efficiency of banking activities. NIM is defined as the ratio of the difference between interest (commission) income and interest (commission) expenses to the assets of a financial organization.

The formula for calculating net interest margin is as follows:

NPM = (DP - RP)/BP,

DP - interest (commission) income; RP - interest (commission) expenses;

AD - income-generating assets.

As a rule, NIM indicators of financial institutions can be found in open sources. This indicator is very important for assessing the stability of a financial organization when opening an account with it.

2.5 Security margin

Guarantee Margin- this is the difference between the value of the collateral and the amount of the loan issued.

2.6 Credit margin

Credit margin- the difference between the estimated value of a product and the amount of credit (loan) issued by a financial institution for the purchase of this product.

2.7 Bank margin

Bank margin(bank margin) is the difference between credit and deposit interest rates, credit rates for individual borrowers, or interest rates on active and passive transactions.

The BM indicator is influenced by the terms of loans issued, the shelf life of deposits (deposits), as well as interest on these loans or deposits.

2.8 Front and back margin

These two terms should be considered together because they are connected to each other

Front margin is the profit from the markup, and back margin is the profit received by the company from discounts, promotions and bonuses.

3. Margin and profit: what's the difference?

Some experts are inclined to believe that margin and profit are equivalent concepts. However, in practice these concepts differ from each other.

Margin is the difference between indicators, and profit is the final financial result. The profit calculation formula is given below:

Profit = B – SP – CI – UZ – PU + PP – VR + VD – PR + PD

B - revenue; SP - cost of production; CI - commercial costs; LM - management costs; PU - interest paid; PP - interest received; VR - unrealized expenses; UD - unrealized income; PR - other expenses;

PD - other income.

After this, income tax is charged on the resulting value. And after deducting this tax it turns out - net profit.

To summarize all of the above, we can say that when calculating the margin, only one type of cost is taken into account - variable costs, which are included in the cost of production. And when calculating profit, all expenses and income that the company incurs in the production of its products (or provision of services) are taken into account.

4. What is the difference between margin and markup?

Very often, margin is mistakenly confused with trading margin. Extra charge- the ratio of profit from the sale of a product to its cost. To avoid any more confusion, remember one simple rule:

Let's try to determine the difference using a specific example.

Suppose you purchased a product for 1000 rubles and sold it for 1500 rubles. Those. the size of the markup in our case was:

H = (1500-1000)/1000 * 100% = 50%

Now let's determine the margin size:

M = (1500-1000)/1500 * 100% = 33.3%

For clarity, the relationship between margin and markup indicators is shown in the table below:

In order to better understand the difference between these two concepts, I suggest you watch a short video:

5. Conclusion

As you can already understand, margin is an analytical tool for assessing the performance of a company (with the exception of stock trading).

And before increasing production or introducing a new product or service to the market, it is necessary to estimate the initial value of the margin.

If you increase the selling price of a product, but the margin does not increase, then this only means that the cost of its production is also increasing. And with such dynamics, there is a risk of being at a loss.

That's probably all. Hopefully, you now have the necessary understanding of what margin is and how it is calculated.

Source: http://zakupkihelp.ru/uchastniku-zakupok/chto-takoe-marzha.html

What is margin

Many people come across the concept of “margin,” but often do not fully understand what it means. We will try to correct the situation and give an answer to the question of what margin is in simple words, and we will also look at what types there are and how to calculate it.

Margin concept

Margin (eng. margin - difference, advantage) is an absolute indicator that reflects how the business operates.

Sometimes you can also find another name - gross profit. Its generalized concept shows what the difference is between any two indicators.

For example, economic or financial.

Important! If you are in doubt about whether to write walrus or margin, then know that from a grammatical point of view you need to write it with the letter “a”.

This word is used in a variety of areas. It is necessary to distinguish what margin is in trading, on stock exchanges, in insurance companies and banking institutions.

This term is used in many areas of human activity - there are a large number of its varieties. Let's look at the most widely used ones.

Gross Profit Margin

Gross or gross margin is the percentage of total revenue remaining after variable costs.

Such costs may be the purchase of raw materials for production, payment of wages to employees, spending money on marketing goods, etc.

It characterizes the overall operation of the enterprise, determines its net profit, and is also used to calculate other quantities.

Operating profit margin

Operating margin is the ratio of a company's operating profit to its income. It indicates the percentage of revenue that remains with the company after taking into account the cost of goods, as well as other related expenses.

Important! High indicators indicate good performance of the company. But be on the lookout because these numbers can be manipulated.

Net Profit Margin

Net margin is the ratio of a company's net profit to its revenue. It displays how many monetary units of profit the company receives from one monetary unit of revenue. After calculating it, it becomes clear how successfully the company copes with its expenses.

It should be noted that the value of the final indicator is influenced by the direction of the enterprise. For example, firms operating in the retail trade usually have fairly small numbers, while large manufacturing enterprises have fairly high numbers.

Interest

Interest margin is one of the important indicators of a bank’s performance; it characterizes the ratio of its income and expense parts. It is used to determine the profitability of loan transactions and whether the bank can cover its costs.

This variety can be absolute or relative. Its value can be influenced by inflation rates, various types of active operations, the relationship between the bank’s capital and resources attracted from outside, etc.

Variational

Variation margin (VM) is a value that indicates the possible profit or loss on trading platforms. It is also the number by which the amount of funds taken as collateral during a trade transaction can increase or decrease.

If the trader correctly predicted the market movement, then this value will be positive. In the opposite situation it will be negative.

When the session ends, the running VM is added to the account or, vice versa, canceled.

If a trader holds his position for only one session, then the results of the trade transaction will be the same as the VM.

And if a trader holds his position for a long time, it will be added to daily, and ultimately its performance will not be the same as the outcome of the transaction.

Watch a video about what margin is:

Margin and Profit: What's the Difference?

Most people tend to think that the concepts of “margin” and “profit” are identical, and cannot understand the difference between them. However, even if it is insignificant, the difference is still present, and it is important to understand it, especially for people who use these concepts every day.

Recall that margin is the difference between a company's revenue and the cost of the goods it produces. To calculate it, only variable costs are taken into account without taking into account the rest.

Profit is the result of a company’s financial activities at the end of a certain period. That is, these are the funds that remain with the enterprise after taking into account all the costs of production and marketing of goods.

In other words, the margin can be calculated this way: subtract the cost of the product from the revenue. And when profit is calculated, in addition to the cost of the product, various costs, business management costs, interest paid or received, and other types of expenses are also taken into account.

By the way, such words as “back margin” (profit from discounts, bonuses and promotional offers) and “front margin” (profit from markups) are associated with profit.

What is the difference between margin and markup?

To understand the difference between margin and markup, you must first clarify these concepts. If everything is already clear with the first word, then with the second it is not entirely clear.

The markup is the difference between the cost price and the final price of the product. In theory, it should cover all costs: production, delivery, storage and sales.

Therefore, it is clear that the markup is an addition to the cost of production, and the margin does not take this cost into account during calculation.

Different difference. When calculating the markup, they take the difference between the cost of goods and the purchase price, and when calculating the margin, they take the difference between the company’s revenue after sales and the cost of goods.
Maximum volume. The markup has almost no restrictions, and it can be at least 100, at least 300 percent, but the margin cannot reach such figures.
Basis of calculation. When calculating the margin, the company's income is taken as the base, and when calculating the markup, the cost is taken.
Correspondence. Both quantities are always directly proportional to each other. The only thing is that the second indicator cannot exceed the first.

Margin and markup are quite common terms used not only by specialists, but also by ordinary people in everyday life, and now you know what their main differences are.

Margin calculation formula

Gross Margin reflects the difference between revenue and total costs. The indicator is necessary for analyzing profit taking into account cost and is calculated using the formula:

GP = TR - TC

Similarly, the difference between revenue and variable costs will be called Marginal income and is calculated by the formula:

CM = TR - VC

Gross Margin Ratio, equal to the ratio of gross margin to the amount of sales revenue:

KVM = GP / TR

Likewise Marginal Income Ratio equal to the ratio of marginal income to the amount of sales revenue:

KMD = CM/TR

It is also called the contribution margin rate. For industrial enterprises the margin rate is 20%, for retail enterprises – 30%.

Interest margin shows the ratio of total costs to revenue (income).

GP = TC/TR

or variable costs to revenue:

CM=VC/TR

Margin in various areas

As we already mentioned, the concept of “margin” is used in many areas, and this may be why it can be difficult for an outsider to understand what it is. Let's take a closer look at where it is used and what definitions it gives.

In economics

Economists define it as the difference between the price of a product and its cost. That is, this is actually its main definition.

Important! In Europe, economists explain this concept as the percentage rate of the ratio of profit to product sales at the selling price and use it to understand whether the company’s activities are effective.

In general, when analyzing the results of a company’s work, the gross variety is most used, because it is it that has an impact on net profit, which is used for the further development of the enterprise by increasing fixed capital.

In banking

In banking documentation you can find such a term as credit margin. When a loan agreement is concluded, the amount of goods under this agreement and the amount actually paid to the borrower may be different. This difference is called credit.

When applying for a secured loan, there is a concept called the guarantee margin - the difference between the value of the property issued as collateral and the amount of funds issued.

Almost all banks lend and accept deposits. And in order for the bank to make a profit from this type of activity, different interest rates are set. The difference between the interest rate on loans and deposits is called the bank margin.

In exchange activities

On exchanges they use a variation variety. It is most often used on futures trading platforms.

From the name it is clear that it is changeable and cannot have the same meaning.

It can be positive if the trades were profitable, or negative if the trades turned out to be unprofitable.

Thus, we can conclude that the term “margin” is not so complicated. Now you can easily calculate using the formula its various types, marginal profit, its coefficient and, most importantly, you have an idea in which areas this word is used and for what purpose.

Default. What are its consequences for the economy and people of our country?

Let's look at it in a separate article.

Beneficiaries or true owners of the business, who are they?

Source: http://svoedelo-kak.ru/finansy/marzha.html

Margin is the difference between... Economic terms. How to calculate margin

Economic terms are often ambiguous and confusing.

The meaning contained in them is intuitive, but rarely does anyone succeed in explaining it in publicly accessible words, without prior preparation. But there are exceptions to this rule.

It happens that a term is familiar, but upon in-depth study it becomes clear that absolutely all its meanings are known only to a narrow circle of professionals.

Everyone has heard, but few people know

Let’s take the term “margin” as an example. The word is simple and, one might say, ordinary. Very often it is present in the speech of people who are far from economics or stock trading.

Most believe that margin is the difference between any similar indicators. In daily communication, the word is used in the process of discussing trading profits.

Few people know absolutely all the meanings of this fairly broad concept.

However, a modern person needs to understand all the meanings of this term, so that at an unexpected moment “not to lose face.”

Margin in economics

Economic theory says that margin is the difference between the price of a product and its cost. In other words, it reflects how effectively the activities of the enterprise contribute to the transformation of income into profit.

Margin is a relative indicator and is expressed as a percentage.

Margin=Profit/Revenue*100.

The formula is quite simple, but in order not to get confused at the very beginning of studying the term, let's consider a simple example. The company operates with a margin of 30%, which means that in every ruble earned, 30 kopecks constitute net profit, and the remaining 70 kopecks are expenses.

Gross Margin

In analyzing the profitability of an enterprise, the main indicator of the result of the activities carried out is the gross margin. The formula for calculating it is the difference between revenue from sales of products during the reporting period and variable costs for the production of these products.

The level of gross margin alone does not allow for a full assessment of the financial condition of the enterprise. Also, with its help, it is impossible to fully analyze individual aspects of its activities.

This is an analytical indicator. It demonstrates how successful the company is as a whole.

Gross margin is created by the labor of the enterprise's employees spent on producing products or providing services.

It is worth noting one more nuance that must be taken into account when calculating such an indicator as “gross margin”.

The formula can also take into account income outside the operating economic activities of the enterprise.

These include writing off accounts receivable and payable, providing non-industrial services, income from housing and communal services, etc.

It is extremely important for an analyst to correctly calculate the gross margin, since this indicator forms the net profit of the enterprise, and subsequently development funds.

In economic analysis, there is another concept similar to gross margin, it is called “profit margin” and shows the profitability of sales. That is, the share of profit in total revenue.

Banks and margin

Bank profit and its sources demonstrate a number of indicators. To analyze the work of such institutions, it is customary to calculate as many as four different margin options:

Credit margin is directly related to work under loan agreements and is defined as the difference between the amount specified in the document and the amount actually issued.
Bank margin is calculated as the difference between interest rates on loans and deposits.
Net interest margin is a key indicator of banking performance. The formula for calculating it looks like the ratio of the difference in commission income and expenses for all operations to all bank assets. Net margin can be calculated based on all the bank’s assets, or only on those currently involved in work.
The guarantee margin is the difference between the estimated value of the collateral property and the amount issued to the borrower.

Such different meanings

Of course, economics does not like discrepancies, but in the case of understanding the meaning of the term “margin” this happens. Of course, on the territory of the same state, all analytical reports are completely consistent with each other.

However, the Russian understanding of the term “margin” in trading is very different from the European one. In the reports of foreign analysts, it represents the ratio of profit from the sale of a product to its selling price.

In this case, the margin is expressed as a percentage. This value is used for a relative assessment of the effectiveness of the company's trading activities.

It is worth noting that the European attitude towards calculating margins is fully consistent with the basics of economic theory, which were described above.

In Russia, this term is understood as net profit. That is, when making calculations, they simply replace one term with another.

For the most part, for our compatriots, margin is the difference between revenue from the sale of a product and overhead costs for its production (purchase), delivery, and sales. It is expressed in rubles or other currency convenient for settlements.

It can be added that the attitude towards margin among professionals is not much different from the principle of using the term in everyday life.

How does margin differ from trading margin?

There are a number of common misconceptions regarding the term “margin”. Some of them have already been described, but we have not yet touched on the most common one.

Most often, the margin indicator is confused with the trading margin. It's very easy to tell the difference between them. The markup is the ratio of profit to cost. We have already written above about how to calculate margin.

A clear example will help dispel any doubts that may arise.

Let’s say a company bought a product for 100 rubles and sold it for 150.

Let's calculate the trade margin: (150-100)/100=0.5. The calculation showed that the markup is 50% of the cost of the goods. In the case of margin, the calculations will look like this: (150-100)/150=0.33. The calculation showed a margin of 33.3%.

Correct analysis of indicators

For a professional analyst, it is very important not only to be able to calculate an indicator, but also to give a competent interpretation of it. This is a difficult job that requires
great experience.

Why is this so important?

Financial indicators are quite conditional.

They are influenced by valuation methods, accounting principles, conditions in which the enterprise operates, changes in the purchasing power of the currency, etc.

Therefore, the obtained calculation result cannot be immediately interpreted as “bad” or “good”. Additional analysis should always be performed.

Margin on stock markets

Exchange margin is a very specific indicator.

In the professional slang of brokers and traders, it does not mean profit at all, as was the case in all the cases described above.

Margin on stock markets becomes a kind of collateral when making transactions, and the service of such trading is called “margin trading”.

The principle of margin trading is as follows: when concluding a transaction, the investor does not pay the entire contract amount in full, he uses borrowed funds from his broker, and only a small deposit is debited from his own account. If the outcome of the operation carried out by the investor is negative, the loss is covered from the security deposit. And in the opposite situation, the profit is credited to the same deposit.

Margin transactions provide the opportunity not only to make purchases using borrowed funds from the broker. The client may also sell borrowed securities. In this case, the debt will have to be repaid with the same securities, but their purchase is made a little later.

Each broker gives its investors the right to make margin trades independently. At any time, he may refuse to provide such a service.

Benefits of Margin Trading

By participating in margin transactions, investors receive a number of benefits:

The ability to trade on financial markets without having large enough amounts in your account. This makes margin trading a highly profitable business. However, when participating in operations, one should not forget that the level of risk is also not small.
The opportunity to receive additional income when the market value of shares decreases (in cases where the client borrows securities from a broker).
To trade different currencies, it is not necessary to have funds in these particular currencies on your deposit.

Management of risks

To minimize the risk when concluding margin transactions, the broker assigns each of its investors a collateral amount and a margin level.

In each specific case, the calculation is made individually.

For example, if after a transaction there is a negative balance in the investor’s account, the margin level is determined by the following formula:

UrM=(DK+SA-ZI)/(DK+SA), where:

DK – investor’s funds deposited;

CA - the value of shares and other investor securities accepted by the broker as collateral;

ZI is the debt of the investor to the broker for the loan.

It is possible to carry out an investigation only if the margin level is at least 50%, and unless otherwise provided in the agreement with the client. According to general rules, the broker cannot enter into transactions that will lead to a decrease in the margin level below the established limit.

In addition to this requirement, for carrying out margin transactions on the stock markets, a number of conditions are put forward, designed to streamline and secure the relationship between the broker and the investor. The maximum amount of loss, debt repayment terms, conditions for changing the contract and much more are discussed.

It is quite difficult to understand all the diversity of the term “margin” in a short time. Unfortunately, it is impossible to talk about all areas of its application in one article. The above discussions indicate only the key points of its use.

Hello site readers! One of the problems of human society is the lack of mutual understanding between people.

Often people cannot understand each other not for some ideological reasons, but because of different understandings of terminology.

The word “margin” is found quite often in the press and everyday life. It is paradoxical that such a simple and familiar term hides a long list of completely different phenomena and concepts.

What does the word Margin mean?

The French word Marge literally means "difference". For example, the difference between the cost of producing a product and its price on the market for the final buyer.

In various fields of activity there is a need for accounting and control in terms of the difference between certain phenomena.

In everyday life, “margin” is often used as a synonym for the words “profit” or “gesheft”. This implies some kind of quick profit from a profitable deal.

In the field of serious, professional commerce, we are also talking about benefit as the difference between costs and income, but in relation to phenomena or actions that reflect complex internal business processes.

Margin and Marginality - what is their difference?

Margin, marginality and even marginality - aren’t these terms easy to confuse?

As a basic concept, margin refers to the difference between production costs and the amount of money that the buyer paid for the product.

The margin is calculated by the average ratio of the cost of production of the product to the selling price and is expressed as a percentage.

Margin reflects the global profitability of a business - the total cost of all the company's production costs to the total cost at which all these goods are sold on the market.

Marginality is used when calculating the profitability of a business, for example, when drawing up a business plan. Is it worth investing money in this project? Will the investment pay off and to what extent?

The more marginal a business is, the more profitable and promising it is.

In simple words, margin is a parameter that shows whether it is worth investing in the production of a particular product.

A marginality business shows whether it is worth getting involved in this enterprise, whether the undertaking will lead to bankruptcy.

Marginality generally refers to sociology and this term is usually used to designate groups of people who find themselves incapable of normal adaptation in society.

Types of Margin in various areas

As you already understand, margin in different contexts, in different types of activities, determines quite different phenomena. Let's dig a little deeper into the details of margins in different areas.

You can understand how concepts differ in different areas by considering the question from the point of view of financial instruments - what is used to make a profit?

In the bank

In banking, margin is an indicator of the difference between the cost of securities or exchange rates, credit interest.

Banks make money by issuing loans, where profit is the difference between the total costs of lending to the average borrower and the commissions received from him.

The bank deals with currency exchange. The margin is the profit that the bank will receive as a result of operations first on the purchase and then on the sale of currency.

In trade

Since trade is not involved in the actual production of goods, margin here refers to the difference between the cost of acquisition and the price at which the product is sold.

In the commercial sphere, a similar concept is used in everyday life - trade margin.

The trade margin does not relate to the calculation of profits and assessment of the profitability of a business, but rather is compensation for costs and overhead expenses during the period from the delivery of goods to the seller to their purchase on the market.

The markup also refers to the difference between wholesale and retail prices. The retailer himself can set a markup, raising the price tags a little higher or lower depending on the success of the trade.

In economics

In a real economy, margin is just a basic concept; it means the percentage of the difference between investments in production and profits from the sale of a particular product.

Forex

In the investment market, brokers and traders on exchanges understand margin as a certain security deposit assigned to promising transactions.

The stock speculator contributes a margin as a guarantee of the transaction, which gives the right to receive a loan, with the help of which it is supposed to carry out speculative operations.

The bottom line is that the Forex market is open and many traders do not have sufficient capital for serious transactions. Then the trader takes a larger amount of credit from his broker against collateral, which is called margin.

In this context, margin means the guarantee or compensation of an accredited broker when issuing a loan to an ordinary trader to carry out a venture (risky) operation.

Speculation on borrowed funds borrowed by a trader from a broker is called “margin trading” in Forex.

Margin concept

Margin (eng. margin - difference, advantage) is an absolute indicator that reflects how the business operates. Sometimes you can also find another name - gross profit. Its generalized concept shows what the difference is between any two indicators. For example, economic or financial.

Important! If you are in doubt about whether to write walrus or margin, then know that from a grammatical point of view you need to write it with the letter “a”.

This word is used in a variety of areas. It is necessary to distinguish what margin is in trading, on stock exchanges, in insurance companies and banking institutions.