Register now or log in to join your professional community.
Gross profit margin is the ratio between the amount left after subtracting Cost of Goods Sold (COGS) from the total revenue of the company and the total revenue itself.
For example, if a company has sales (revenue) of $800.000 and COGS $600.000, then the gross profit margin is ($800.000 - $600.000) / $800.000 = 25%
On the other hand, operating margin is the amount left after subtracting from the total revenuwe of a company all operating costs, including overheads, salaries, administration etc., i.e. includes indirect costs as well.
Typically this cost is greater than COGS which includes only direct costs of the goods sold.
This is a typical mistake companies do when costing and although gross margin seems fine, they are loosing money.
In general Operating profit is the Gross Profit minus variable and fixed cost of sales
Panagiotis Vamvakos has given a good answer above
Thanks
Fully agree with answer given by Mr. Vamvakos
I agree with Mr.Panagiotis Vamvakos answer.
Mr. Mikhail Vaskiyev has presented an extremely simple answer to the question.
I agree to the above explanation by brother Panagiotis Vamvakos
I would like to add that GPM is a good indicator for comparing company's performance with its competitors. This indicator tells how efficient the company is in its core business such as procurement efficiency, inventory management skills, machinery efficiency etc?
Comparison at NPM with competitors indicate the efficiencies in managing business other than its core areas such as advertising, legacy costs, tax planning etc.
