How to analyze and communicate your profit margin
Do you know the difference between gross margin and net margin? Know how to calculate earnings per share? Here’s a quick guide on the math behind these important terms.
[Editor’s Note: This is an excerpt from “Business Acumen for Strategic Communicators: A Primer.” You can purchase the book here and Ragan/PR Daily readers receive a 30% discount with the code BUSINESS30.]
Business leaders, such as CEOs and other members of the C-suite, boards of directors and other financially incentivized stakeholders, such as shareholders, generally have a keen interest in an organization’s profit margins. Often, an organization’s financial performance is gauged not only by its absolute net profits or earnings, but its relative level of profitability; in other words, what percentage of every dollar in revenue generated drops to the bottom line.
C-suite leaders, boards and investors generally want to see an organization’s profit margins hold steady or expand from one year to the next, rather than decline. Publicly traded corporations are particularly under pressure to see their profit margins grow over time. A variety of different profit margins may be calculated from the figures on a company’s income statement. Three important profit margin indicators are gross margin, operating margin and net margin.
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