Average margin. What's happened. Margin at the enterprise

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 cost, and the margin will be determined by the difference between value and 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.

In the economic sphere, there are many concepts that people rarely encounter in everyday life. Sometimes we come across them while listening to economic news or reading a newspaper, but we only imagine the general meaning. If you have just started your entrepreneurial activity, you will have to familiarize yourself with them in more detail in order to correctly draw up a business plan and easily understand what your partners are talking about. One such term is the word margin.

In trade "Margin" expressed as the ratio of sales proceeds to the cost of the product sold. This is a percentage indicator, it shows your profit when selling. Net profit is calculated based on margin indicators. It’s very easy to find out the margin indicator

Margin=Profit/Sales Price * 100%

For example, you bought a product for 80 rubles, and the selling price was 100. The profit is 20 rubles. Let's do the calculation

20/100*100%=20%.

The margin was 20%. If you have to work with European colleagues, it is worth considering that in the West the margin is calculated differently than in our country. The formula is the same, but net income is used instead of sales proceeds.

This word is widespread not only in trade, but also on stock exchanges and among bankers. In these industries, it means the difference in securities prices and the bank’s net profit, the difference in interest rates on deposits and loans. For different areas of the economy, there are different types of margin.

Margin at the enterprise

The term gross margin is used in businesses. It means the difference between profit and variable costs. It is used to calculate net income. Variable costs include equipment maintenance costs, labor costs, and utilities. If we are talking about production, then gross margin is the product of labor. It also includes non-operating services that are profitable from outside. This is an identifier of a company's profitability. From it various monetary bases are formed to expand and improve production.

Margin in banking

Credit margin– the difference between the commodity value and the amount allocated by the bank for its purchase. For example, you take out a table worth 1000 rubles on credit for a year. After a year, you pay back 1,500 rubles in total with interest. Based on the formula above, the margin on your loan for the bank will be 33%. Credit margin indicators for the bank as a whole affect the interest rate on loans.

Banking– the difference between the interest rate coefficients on deposits and issued loans. The higher the interest rate on loans and the lower the interest rate on deposits, the greater the bank margin.

Net interest– the difference between interest income and expense in a bank in relation to its assets. In other words, we subtract the bank's expenses (paid loans) from income (profit on deposits) and divide by the amount of deposits. This indicator is the main one when calculating the bank’s profitability. It defines stability and is freely available to interested investors.

Warranty– the difference between the probable value of the collateral and the loan issued against it. Determines the level of profitability in case of non-return of money.

Margin on the exchange

Among traders participating in exchange trading, the concept of variation margin is common. This is the difference between the prices of the purchased futures in the morning and in the evening. A trader buys futures for a certain amount in the morning at the beginning of trading, and in the evening, when trading closes, the morning price is compared with the evening price. If the price has increased, the margin is positive; if it has decreased, the margin is negative. It is taken into account daily. If analysis is needed over several days, the indicators are added up and the average value is found.

The difference between margin and net income

Indicators such as margin and net income are often confused. To feel the difference, you should first understand that margin is the difference between the values of purchased and sold goods, and net income is the amount from sales minus consumables: rent, equipment maintenance, utility bills, wages, etc. If we subtract the tax from the resulting amount, we get the concept of net profit.

Margin trading is a method of buying and selling futures using borrowed funds against certain collateral - margin.

The difference between margin and “cheat”

The difference between these concepts is that the margin is the difference between the sales profit and the cost of the goods sold, and the markup is the profit and the cost of the purchase.

In conclusion, I would like to say that the concept of margin is very common in the economic sphere, but depending on the specific case, it affects different indicators of the profitability of an enterprise, bank or stock exchange.

Hello, dear readers of the blog site. Those who, to one degree or another, are faced with the topic of doing business or any other financial aspects of activity have probably heard the word “margin”.

At the same time, this word is used quite often in everyday life, but not everyone fully understands its meaning (which occurs often, but few people really understand what it means).

So what is margin? What is marginality or margin? Speaking in general terms, then this is a share of the profit, which is calculated as the difference between the cost of something and the price at which it is sold.

Remember the joke about 3%, where a not very distant businessman explains that he lives on only three percent, buying something for 100 rubles and selling for 300. But such discrepancies actually occur not only in questionnaires. People, for example, often confuse margin and markup, and then have to spend a long time trying to figure out which partner was wrong.

In simple words about margin

There are several words that are very close in meaning and mean almost the same thing - these are the words profit, markup and, of course, margin. Today we will focus on marginality, but we will also definitely mention how they differ from each other, so that later we can speak the same language with business partners without any “misunderstandings” arising.

Historically, the word margin comes from the English “margin”, which, as is usual in the great and mighty Russian language, has dozens of meanings. For example, in a series of articles about website layout, and there this word meant margins, indentation from adjacent elements, a certain amount of free space.

Actually, it means something similar in the world of finance. In fact, this is precisely the notorious profit that a businessman increases relative to the base cost something (product, service). In the most general sense, this is the difference in the price of a product at different stages of its movement on the market (from creation to acquisition).

The margin can be expressed both in absolute monetary units (rubles, tugrigs, dollars, hryvnias, euros) and as a percentage. It's important to remember - the margin can never be greater than 100%. This is an axiom, and by remembering this simple rule, you will be able to avoid mistakes and discrepancies with colleagues and partners in the future.

They confuse margin with the so-called trade margin, which again can be expressed in both absolute and relative units. Moreover, in absolute units both the margin and markup will be the same, but in relative terms they will be different. All the confusion arises precisely when margins are calculated as percentages. Why is this happening? Let me show you with an example.

Let us have a product that we bought for 100 rubles, and sell for 300 rubles (the same notorious three percent from the joke). In this case in absolute units both margin and markup will be calculated using the same formula: resale price minus purchase price. In our example, it will be 300 minus 100 = 200 rubles. Everything is clear here and no one ever gets confused.

But the relative values of margin and trade margin are calculated differently. Margin in percent- this is 300 - 100 divided by 300 (and, of course, multiplied by 100%). And the trade margin as a percentage is 300 - 100 divided by 100 (multiplied by 100%).

You can see for yourself that the margin in our example will be equal to 66% (significantly less than 100%, although the intermediary tripled the price of the goods), but the trade margin will be exactly that same 300%. It's clear? We felt the difference. Therefore, it is important to understand very clearly what we are talking about - margins or trade margins, because as a percentage these result in completely different numbers (often differing significantly).

If my example seemed incomprehensible to you, then in this two-minute video, look at the formulas with your own eyes and get the gist:

Well and Margin differs from net profit the fact that additional costs are not taken into account here, for example, for temporary storage of goods, for their transportation, for advertising, etc. That is, the net profit will be slightly less than the calculated margin. But this, of course, will not be as striking a difference (however) as with the trade margin.

Margin and margin trading - what is it?

I'll torment you a little more. You can also hear the word “margin” in relation to various stock market speculations. An exchange is, in fact, just a platform for transactions, and they make money there exactly the same as in life - buy cheaper and sell more expensive. Speculation is also speculation in Africa (and this word used to be a dirty word).

So, in some other types of exchanges (for example, in, which I recently wrote about) there is an opportunity conduct margin trading with the so-called shoulder. What it is? In principle, I wrote about this in great detail in the article linked to it, but here I will still briefly repeat myself.

On such exchanges, you place bets on the fall or rise of the exchange rate (dollar, pound, euro, bitcoin or other altcoins). If you guessed the direction of the exchange rate, then your earnings will depend on how much the exchange rate changes in the direction you want.
The main thing here is to close in time, before the process of the rate moving in a different direction begins. Your profit will be equal to the transaction margin (the difference between the initial price and the closing price of the transaction). You can make money both on growth and on decline - it doesn’t matter.

Margin trading with leverage allows having a relatively small amount on deposit (exchange account) earn (or lose) a lot at once. Without trading with leverage, you, say, with $10 in your account, can earn a couple of cents, but if you used x100 leverage in the same situation, you would have earned a hundred times more, i.e. a couple of dollars.

It is true that the loss when margin trading with leverage will be the same number of times greater, so beginners are highly discouraged from starting to trade immediately with a large leverage, because there is a risk of losing everything quickly. It is noteworthy that in this case you risk only the money on deposit. You won’t be able to lose more than this and you won’t owe it to anyone (this is not a loan).

It’s as if they give you virtual money (in our example, increasing the real $10 to $1000 thanks to x100 leverage). In any case, even if you win, then at your own expense you you will only get profit from the transaction (the very notorious margin) plus the amount that you actually used (the virtual increase will remain virtual). In our example, by betting $10 you will receive $12 in total (increase your deposit).

If you lose, then the margin (negative, i.e. loss) will be deducted from the amount involved in the transaction. In our example, instead of betting $10, you will only have $8 left (the $10 bet minus the $2 loss). But with a large leverage, you can lose everything, and very, very quickly (literally in seconds), if you choose the wrong direction of movement of the exchange rate (dollar and cryptocurrency), and the exchange rate sharply goes in the other direction.

In general, this type of trading can allow earn much faster(tens and hundreds of times), but the risk of losing everything increases just as much. For beginners, as I already mentioned, margin trading with a leverage higher than two and three is highly not recommended. Pros can add margin in time and stay afloat even with an unsuccessful bet, waiting for the desired direction of the exchange rate movement. IMHO.

Good luck to you! See you soon on the pages of the blog site

Definition

The basic definition of margin is formulated as the difference between the cost of goods and the amount received from the sale of these goods. The English word "margin" and the French word "marge" both translate as "difference." This term is used in various sectors of the economy related to trade, insurance, stock trading and banking. Everywhere the term has its own characteristics, but it always defines the difference between various quantities that determine costs and revenue.

The margin value can be expressed in any monetary units, but the margin value as a percentage is more often used. And it is in percentage terms that the margin acquires its differences from the well-known concepts of profit and markup, which are also calculated as the difference between costs and revenue received. The difference between these concepts lies in the list of costs included in expenses, as well as in relation to which the margin percentage is calculated.

Margin and markup - what's the difference?

Margin and markup, defined in monetary units, will always be equal to each other based on the definition of each concept. A markup is understood as the amount by which production is increased, in other words, how much the selling price is higher than production costs.

Markup = Selling Price – Cost

For margin in absolute terms, the formula is similar.

Everything changes when the value of these concepts is determined as a percentage:

Markup = [(Sale Price – Cost) / Cost] x 100%

Margin = [(Sale Price – Cost) / Sale Price] x 100%

Cost of one product: 50 rubles

Sale price: 90 rubles

In rubles:

Markup = Margin = 90 – 50 = 40 rubles

In percentages:

Markup = [(90 – 50)/50] x 100% = 80%

Margin = [(90 – 50)/90] x 100% = 44.4%

The difference in numbers is obvious, but the main difference is that while the markup can exceed 100%, the margin will always be below this value. Margin thus determines what percentage of the selling price is the markup, which is important in determining profitability. After all, for any type of commercial transaction it is important that there is a profit that can cover the costs incurred and provide the opportunity for further development.

What does margin characterize?

Margin is a very important indicator of the efficiency of an enterprise, since its value characterizes how profitable the enterprise is and how it is able to develop. When analyzing the financial viability of an enterprise, the concept of marginal profitability is used, which is calculated as the difference between the amount received as revenue for products sold and the amount of variable costs. The higher the indicator, the sooner you can cover fixed costs and get a net profit. This term is to some extent close to the concept of gross profit used in Russia.

Kinds

The concept of “margin” may have its own specifics and classification for different areas of the economy. Everywhere it invariably reflects the difference between revenue received and costs, and in some cases the margin can have both a positive and negative value. Let's consider where and in what types the concept of margin is used.

For production

The following types are distinguished:

Gross - is defined as the excess of revenue received after selling products over variable costs (purchase of raw materials, wages, transportation costs, etc.), related to the amount of revenue, as a percentage. It turns out that gross margin shows the percentage of profit in revenue. The level of gross margin is used as a calculated analytical indicator of the viability of the enterprise and shows the ability of the enterprise to form the funds necessary for development.
Clean. It is calculated by the ratio of net profit to revenue, which allows you to determine what part of the profit falls on a unit of revenue. This value directly relates to the profitability of a business, demonstrating how efficient the enterprise itself or the products it produces are profitable. The level of net margin makes it possible to calculate the profitability of an enterprise, which characterizes the ratio of profit to capital invested in the business.

Banking

In the banking business, the margin is determined for each of the ways the bank generates income:

Credit - the difference between the amount of the loan issued, given in the agreement, and the amount received by the client.
Guarantee – the amount of excess of the value of the collateral over the loan amount.
Banking - reflects how much the interest rate on loans exceeds the deposit rate.
Net interest () is a fundamental indicator of the banking business, defined as the ratio of the difference between commission income and expenses to the amount of bank assets.

Exchange sphere

The term “margin” is strongly associated with stock trading. This is where the term margin trading comes into play. This concept is found on stock and currency exchanges, as well as on modern cryptocurrency exchanges. The essence of exchange trading is to profit from changes in the price at the time of purchase of the item being traded and the price at the time of sale. If the price went up, then a positive margin is obtained; if the price fell, then a negative margin is obtained. This type of margin is called variation margin.

The peculiarity of margin trading is that when investing a small amount in exchange trading, you can operate with significantly larger amounts (the so-called leverage). With this trading option, the purchase amount increases depending on the selected leverage. For example, if the leverage is 1:100, then with an investment of $10 you can buy $1000. Accordingly, the resulting margin increases 100 times, both positive and negative, which, when closing a position, is either added to the existing deposit or subtracted from it. This method of trading on the stock exchange attracts the possibility of quick and large earnings, but it is always worth remembering that losses will be just as great and quick.

Insurance

For insurance companies, the main indicator is the solvency margin. This indicator is calculated by determining the difference between the company's assets and the amount of liabilities to clients. It shows the ability of insurers to cover possible insurance liabilities not only with available payments, but also with their own capital free from liabilities. The state controls the level of the solvency margin, for this it has a normative significance, and its actual value is determined. During normal operation of an insurance organization, the actual value cannot be less than the standard value.

The topic of margin, its definition, calculation formulas, use in assessing the condition, efficiency of enterprises is extensive and requires special training. We tried to briefly give an idea of this concept, options for its use, and features in various areas of the economy.

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Margin: what is it in simple words? Types of margin

The term “margin” is heard by every person associated with business. Often, beginning businessmen and ordinary people confuse margin with profit, considering one word to be a substitute for the other. However, despite the fact that both concepts help to evaluate the economic result of an organization’s activities, there is still a difference between them. Let's try to figure it out.

The meaning of the word “margin” in different areas:

Margin(in a professional sense) - collateral for obtaining a loan in monetary or commodity equivalent, which is subsequently used to carry out a speculative stock exchange transaction;
Margin(translation from English - difference; advantage) - a coefficient used in economics that denotes the differences between financial quantities. For example, stock prices or product prices;
In general market vocabulary, the difference between the price of a product or service and its cost (analogy with profit).

Abroad, margin is considered an interest rate that determines the proportion of profit to the final price of the product. Thus, the progressiveness of a particular company is assessed. In our country, margin means “net profit”, so there is no talk about special computational methods for determining margin or profit, due to the fact that they are practically the same thing.

What are the margins?

Operating margin – the ratio of a company’s operating revenue to its income. Simply put, it shows how much money a company makes or loses from its core business for each unit sold;
Gross Margin – percentage of gross profit from each ruble of sales. As this percentage increases, the premium that the company will receive after selling goods and services also increases;
Variation margin a is the amount that is paid or deducted from the trader’s cash balance based on the results of the configuration of currency obligations during transactions. Also, this is an indicator by which the amount of funds taken as collateral may increase or decrease. The margin level varies depending on the trading results: at the end of the trading session, the accrued variation margin is added to the account or withdrawn from it (back margin). If a trader holds a position for one trading session, the trading result will be equal to the variation margin. If the trader remains at the same level for a long time, it will continue to increase every day, after which, ultimately, the VM indicators will be different from the monetary outcome of the transaction;
Interest margin — the difference between the profit of a commercial bank and its costs, i.e. between interest purchased and interest paid. It is considered one of the main characteristics in the banking industry. The interest margin is influenced by all aspects of the bank’s work: both internal and external active operations, credit and deposit obligations, the ratio between equity and borrowed capital, etc. PM is calculated in absolute or percentage terms.

The simplest formula for determining margin:

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

For example, the cost of a kilogram of bananas is 60 rubles, and the retail price in a store is 85 rubles. This means that the margin is equal to: (85-60)/85*100%= 33.3%.

It is not difficult to guess that the margin amount is indicated as a percentage. Each indicator of this formula is taken in the absolute value or currency that is applicable to a specific area of economic activity. In our country, margin calculations are most often carried out in rubles and are used in natural and exchange trading, the insurance market and the banking sector.

What is the difference between margin and markup?

The understanding of markup in the exchange market is quite specific; the concept of “trading margin” is more often used. However, people who do not delve into such economic subtleties are often mistaken in this regard. Another popular misconception is equating margin with markup on products. The difference is quite easy to determine: the margin is the ratio of the profit received to the market price of a particular product. The trade margin is characterized as the ratio of the monetary benefit from the sale of a product to the cost.

To summarize, it should be noted that the main difference between margin and profit (in a general sense) is the fact that it is one of the main analytical performance ratios in the banking sector and in the foreign exchange market. For traders, the amount of margin provided by a broker is extremely important. And only due to the analytical assessment of dividends, the margin can be compared with the markup in retail trade. In simple words, margin is the difference between the proceeds from the sale of a product and its initial price.

When using the information in full or in part, a link to UniCredit (for Internet resources - hyperlink www..