What's happened. What is margin in clear language What is margin in simple words in trading

Quite often, entrepreneurs start their business based on good margins. It evaluates the profitability of a business. In this article we will talk in detail about margin, as well as some of the features associated with it.

It doesn't matter how much income your business generates, it is important that you spend as little money as possible on its production. For example, if you receive 100 million dollars a year, and spend 100 million and one dollar, then you will not be able to make money from such a business. In order for your business to survive for a long time, it must generate income. No company will work for a long time if it brings in little income. The profit generated allows your business to stay afloat.

Every entrepreneur, starting his own business, must estimate the expected profitability. This is a must for your business to be successful. Therefore, before starting your business, you need to calculate the expected margin. This check will help you save your money and assess possible risks. You can often observe a situation where a business starts without calculating the risk. We recommend that you do this during the initial start of your business.

Margin Definition

Margin is an increase in the monetary equivalent, taking into account costs and the cost of the product. However, such a concept will not give you a complete definition of this monetary instrument. Margins increase if production costs decrease and product prices increase. So, you need to ensure maximum profit by reducing costs. Let's look at this definition in more detail.

First you need to supplement the above concept.
Typically, margin is understood as the increase in monetary capital per unit of goods.

That is, marginality is the difference between all the costs that were spent on production and the profit received.

The process of calculating margin will be carried out both at the start of your business and throughout its existence.

The more often you determine your margin, the better quality your business will be because you will correctly estimate the expected cash gain.

Calculation formula

To understand the essence of this procedure, you need to specify the formula for calculating marginality:

MAR=DOH-IZD

This formula provides us with a clear understanding of the margin calculation process. There is nothing complicated about calculating margin. Two indicators will be enough for you to determine the profitability of your business.

Let's look at a specific example.

Let's say you need to produce 2000 units of goods, the market price of which is 20 rubles each. Total production costs are 25 thousand rubles.

Substituting the data into the previously stated formula:

MAR=2000*20-25000= 15,000 rubles.

Thus, we have established that the margin of our enterprise will be 15 thousand rubles.

It is also necessary to indicate that the margin can be calculated not in monetary terms, but as a percentage.

Let's look at another example.

Let's say your broker offers you to buy 500 shares at $1 per share. In addition, he said that their cost next month would be $3.

It turns out that you had $500, and with an investment in the stock market, your amount became equal to $1,500.

In formula form: MAR=1500*100/500=300%

That is, when investing money in stocks, your margin will be 300%. Any businessman will tell you that this is a great investment. We will not consider the possibilities of the stock market, but you need to understand that this activity has its own risks. Therefore, whether you invest money in it is up to you.

Purpose of margin calculation

The purpose of calculating margins is to assess the profitability of a business.

In order to correctly calculate the margin, you do not need to have extensive knowledge in the field of economics or investment financing. All you need is to use the above formulas. We recommend that you use a formula to determine the margin as a percentage.

This option will allow you to competently assess the possibilities of your financial investment. The margin interest rate will help determine expected returns over time. Guided by a correct assessment of the situation, you can choose the right solution.

The difference between margin and markup

The markup is the difference between the wholesale and retail prices. And we established earlier that marginality is the difference between profit and costs incurred. So the markup is defined as the difference in relation to the cost, and the margin will be determined by the difference between the valuable and the cost.

Thus, we have established formulas for determining marginality. Which option to choose is up to you. A properly defined margin will allow you to manage your money more intelligently.

An indicator of the efficiency of a credit institution and the profitability of its operations, formed by the difference between the funds raised and the profit on their investments.

The simplest example of a margin is the difference between a relatively low interest rate on deposits and a higher interest rate on loans issued.

Effective products in terms of margin in the banking sector are considered to be consumer loans and credit cards. At the same time, issuing loans to company employees and representatives of partner banks have priority, since the risks for this category of borrowers are significantly lower and it is possible to fully check the borrower before providing him with money; Therefore, despite the relatively low margin of this procedure, it is beneficial for banks.

Margin can be characterized both in numerical terms (in rubles) and in percentage terms.

Types and indicators of bank margin

• credit - the amount is the sum of the difference received from the amount issued under the loan and the amount received as a result of loan repayment;
• guarantee - the amount consists of the difference between the value of the property pledged and the loan amount;
• percentage - the value is made up of the ratio of the difference between income and expenses as a percentage of the bank's assets (the indicator will depend on whether the bank's total assets are taken into account or only working ones).

• conditions for opening deposits;
• term and amount of interest on loans;
• inflation rate;
• structure of incoming resources;
• percentage of active operations that generate net income;
• economic situation in the country and in the world, etc.

Features of marginality in the field of banking services

Therefore, the margin will be calculated not based on a unit of goods, but for a specific period, for example, a quarter, a year, etc.

The main task of the banking margin is to determine the effectiveness of the institution's investment of its own funds. This is if we take the theory. But in practice, banks strive to increase the number of commission transactions, that is, those that do not require investment of their own funds, but will bring profit to the organization. We are talking, for example, about trading coins.

The second option is to add “hidden” commissions and risk insurance when issuing loans to clients. At the same time, as the loan amount increases, the size of commission transactions will increase.

This is the so-called transactional policy, which, according to research by ACRA analysts, will allow many banks to stay afloat, while those banks that relied on expensive liabilities from organizations and invested little will receive lower margins.

Thus, margin is an analytical tool that allows you to determine the efficiency of a credit institution. Its meaning can be changed either by elaborating the terms of the “old” product, introducing a transactional policy, or developing new proposals. In this case, you should proceed from clearly defined priorities: low risks and small profits or increasing the margin, attracting new, untested clients.

Various indicators are used to evaluate economic activity. The key is margin. In monetary terms, it is calculated as a markup. As a percentage, it is the ratio of the difference between sales price and cost to the sales price.

It is necessary to periodically evaluate the financial activities of an enterprise. This measure will allow you to identify problems and see opportunities, find weaknesses and strengthen strong positions.

Margin is an economic indicator. It is used to estimate the amount of markup on the cost of production. It covers the costs of delivery, preparation, sorting and sale of goods that are not included in the cost, and also generates the profit of the enterprise.

It is often used to assess the profitability of an industry (oil refining):

Or justify making an important decision at a separate enterprise (“Auchan”):

It is calculated as part of an analysis of the company's financial condition.

Examples and formulas

The indicator can be expressed in monetary and percentage terms. You can count it either way. If expressed in rubles, then it will always be equal to the markup and is found according to the formula:

M = CPU - C, where

CP - selling price;
C - cost.
However, when calculating as a percentage, the following formula is used:

M = (CPU - C) / CPU x 100

Peculiarities:

• cannot be 100% or more;
• helps analyze processes in dynamics.

An increase in product prices should lead to an increase in margins. If this does not happen, then the cost is rising faster. And in order not to be at a loss, it is necessary to reconsider the pricing policy.

Attitude towards markup

Margin ≠ Markup when expressed as a percentage. The formula is the same with the only difference - the divisor is the cost of production:

H = (CP - C) / C x 100

How to find by markup

If you know the markup of a product as a percentage and another indicator, for example, the selling price, calculating the margin is not difficult.

Initial data:

• markup 60%;
• sale price - 2,000 rub.

We find the cost: C = 2000 / (1 + 60%) = 1,250 rubles.

Margin, respectively: M = (2,000 - 1,250)/2,000 * 100 = 37.5%

Summary

The indicator is useful for small enterprises and large corporations to calculate. It helps to assess the financial condition, allows you to identify problems in the pricing policy of the enterprise and take timely measures so as not to miss out on profits. It is calculated along with net and gross profit for individual products, product groups and the entire company as a whole.

Margin is one of the determining factors in pricing. Meanwhile, not every aspiring entrepreneur can explain the meaning of this word. Let's try to rectify the situation.

The concept of “margin” is used by specialists from all spheres of the economy. This is, as a rule, a relative value, which is an indicator. In trade, insurance, and banking, margin has its own specifics.

How to calculate margin

Economists understand margin as the difference between a product and its selling price. It serves as a reflection of the effectiveness of business activities, that is, an indicator of how successfully the company converts into.

Margin is a relative value expressed as a percentage. The margin calculation formula is as follows:

Profit/Revenue*100 = Margin

Let's give a simple example. It is known that the enterprise margin is 25%. From this we can conclude that every ruble of revenue brings the company 25 kopecks of profit. The remaining 75 kopecks relate to expenses.

What is gross margin

When assessing the profitability of a company, analysts pay attention to gross margin - one of the main indicators of a company's performance. Gross margin is determined by subtracting the cost of manufacturing a product from the revenue from its sale.

Knowing only the size of the gross margin, one cannot draw conclusions about the financial condition of the enterprise or evaluate a specific aspect of its activities. But using this indicator you can calculate other, no less important ones. In addition, gross margin, being an analytical indicator, gives an idea of ​​the company's efficiency. The formation of gross margin occurs through the production of goods or provision of services by the company's employees. It is based on work.

It is important to note that the formula for calculating gross margin takes into account income that does not result from the sale of goods or the provision of services. Non-operating income is the result of:

• writing off debts (receivables/creditors);
• measures to organize housing and communal services;
• provision of non-industrial services.

Once you know the gross margin, you can also know the net profit.

Gross margin also serves as the basis for the formation of development funds.

When talking about financial results, economists pay tribute to the profit margin, which is an indicator of the profitability of sales.

Profit Margin is the percentage of profit in the total capital or revenue of the enterprise.

Margin in banking

Analysis of the activities of banks and the sources of their profits involves the calculation of four margin options. Let's look at each of them:

1. 1. Banking margin, that is, the difference between loan and deposit rates.
2. 2. Credit margin, or the difference between the amount fixed in the contract and the amount actually issued to the client.
3. 3. Guarantee margin– the difference between the value of the collateral and the amount of the loan issued.
4. 4. Net interest margin (NIM)– one of the main indicators of the success of a banking institution. To calculate it, use the following formula:

   NIM = (Fees and Fees) / Assets
   When calculating the net interest margin, all assets without exception can be taken into account or only those that are currently in use (generating income).

Margin and trading margin: what is the difference

Oddly enough, not everyone sees the difference between these concepts. Therefore, one is often replaced by another. To understand the differences between them once and for all, let’s remember the formula for calculating margin:

Profit/Revenue*100 = Margin

(Sales price – Cost)/Revenue*100 = Margin

As for the formula for calculating the markup, it looks like this:

(Selling price – Cost)/Cost*100 = Trade margin

For clarity, let's give a simple example. The product is purchased by the company for 200 rubles and sold for 250.

So, here is what the margin will be in this case: (250 – 200)/250*100 = 20%.

But what will be the trade margin: (250 – 200)/200*100 = 25%.

The concept of margin is closely related to profitability. In a broad sense, margin is the difference between what is received and what is given. However, margin is not the only parameter used to determine efficiency. By calculating the margin, you can find out other important indicators of the enterprise’s economic activity.

The concepts of markup and margin, which many have heard, are often denoted by one concept - profit. In general terms, of course, they are similar, but still the difference between them is striking. In our article, we will understand these concepts in detail, so that these two concepts are not “combed with the same brush,” and we will also figure out how to correctly calculate the margin.

Dear reader! Our articles talk about typical ways to resolve legal issues, but each case is unique.

If you want to know how to solve exactly your problem - contact the online consultant form on the right or call by phone.

It's fast and free!

What is the difference between markup and margin?

Margin is the ratio between the price of a product on the market to the profit from its sale, the main income of the company after all expenses, measured as a percentage, have been subtracted. Due to the calculation features, the margin cannot be equal to 100%.

Extra charge- this is the amount of the difference between the product and its selling price at which it is sold to the buyer. The markup is aimed at covering the costs incurred by the seller or manufacturer in connection with the production, storage, sale and delivery of goods. The size of the markup is formed by the market, but is regulated by administrative methods.

For example, a product that was purchased for 100 rubles is sold for 150 rubles, in this case:

• (150-100)/150=0.33, as a percentage 33.3% – margin;
• (150-100)/100=0.5, as a percentage 50% – markup;

From these examples it follows that a markup is just an addition to the cost of a product, and a margin is the total income that the company will receive after deducting all mandatory payments.

Differences between margin and markup:

1. Maximum permissible volume– the margin cannot be equal to 100%, but the markup can.
2. Essence. The margin reflects income after deducting necessary expenses, and the markup is an addition to the cost of the product.
3. Calculation. The margin is calculated based on the organization’s income, and the markup is calculated based on the cost of the product.
4. Ratio. If the markup is higher, then the margin will be higher, but the second indicator will always be lower.

Calculation

Margin is calculated using the following formula:

OTs – SS = PE (margin);

Explanation of indicators used when calculating margin:

• PE– margin (profit per unit of goods);
• OC
• JV– cost of goods;

Formula for calculating margin or percentage of profitability:

• TO– profitability ratio as a percentage;
• P. – income received per unit of goods;
• OC– the cost of the product at which it is sold to the buyer;

In modern economics and marketing, when it comes to margins, experts note the importance of taking into account the difference between the two indicators. These indicators are the profitability ratio from sales and profit per unit of goods.

When talking about margins, economists and marketers note the importance of the difference between profit per unit of goods and the overall profitability ratio for sales. Margin is an important indicator, as it is a key factor in pricing, the profitability of marketing spend, as well as analyzing client profitability and forecasting overall profitability.

How to use a formula in Excel?

First you need to create a document in Exc format.

An example of a calculation would be the price of a product at 110 rubles, while the cost of the product will be 80 rubles;

Markups are calculated using the formula:

N = (CP – SS)/SS*100

Gde:

• N– markup;
• CPU- Selling price;
• SS– cost of goods;

Margins are calculated using the formula:

M = (CP – SS)/CP*100;

• M– margin;
• CPU- Selling price;
• SS– cost;

Let's start creating formulas for calculations in the table.

Calculation of markup

Select a cell in the table and click on it.

We write the sign corresponding to the formula without a space or activate the cells using the following formula (follow according to the instructions):

• =(price – cost)/ cost * 100 (press ENTER);

If you fill out the markup field correctly, the value should be 37.5.

Margin calculation

• =(price – cost)/ price * 100 (press ENTER);

If you fill out the formula correctly, you should get 27.27.

When receiving an unclear value, for example 27, 272727…. You need to select the required number of decimal places in the “cell format” option in the “number” function.

When making calculations, you must always choose the values: “financial, numerical or monetary”. If other values ​​are selected in the cell format, the calculation will not be performed or will be calculated incorrectly.

Gross margin in Russia and Europe

The concept of gross margin in Russia refers to the profit earned by an organization from the sale of goods and the variable costs of its production, maintenance, sales and storage.

There is also a formula to calculate gross margin.

It looks like this:

VR – Zper = gross margin

• VR– the profit the organization receives from the sale of goods;
• Zper. – costs of production, maintenance, storage, sales and delivery of goods;

This indicator is the main state of the enterprise at the time of calculation. The amount invested by the organization in production, on the so-called variable costs, shows marginal gross income.

Gross margin, or margin in other words, in Europe, is a percentage of the total income of an enterprise from the sale of goods after paying all necessary expenses. Gross margin calculations in Europe are calculated as percentages.

Differences between exchange and margin in trading

To begin with, let’s say that such a concept as margin exists in different areas, such as trading and the stock exchange:

1. Margin in trading– a fairly common concept due to trading activities.
2. Exchange margin– a specific concept used exclusively on exchanges.

For many, these two concepts are completely identical.

But this is not so, due to significant differences, such as:

• the relationship between the price of a product on the market and profit - margin;
• the ratio of the initial cost of goods and profit - markup;

The difference between the concepts of the price of a product and its cost, which is calculated by the formula: (price of the product - cost) / price of the product x 100% = margin - this is exactly what is widely used in economics.

When calculating using this formula, absolutely any currencies can be used.

Use of settlements in exchange activities

When selling futures on an exchange, the concept of exchange margin is often used. Margin on exchanges is the difference in changes in quotes. After opening a position, margin calculation begins.

To make it clearer, let’s look at one example:

The cost of the futures that you purchased is 110,000 points on the RTS index. Literally five minutes later the cost increased to 110,100 points.

The total size of the variation margin was 110000-110100=100 points. If in rubles, your profit is 67 rubles. With an open position at the end of the session, the trading margin will move into the accumulated income. The next day everything will repeat again according to the same pattern.

So, to summarize, there are differences between these concepts. For a person without economic education and work in this field, these concepts will be identical. And yet, now we know that this is not so.

home » How to earn » What's happened. What is margin in clear language What is margin in simple words in trading