Margins on the P&L
Read each line as a percent of revenue, and spot when bigger dollars hide a worse business.
In your head, jot if needed · no calculator why?
Opens at level 19.
Lesson and untimed practice
Read the full lesson and try each skill without a clock. About 3 minutes to read.
skills · practice stats
-
Margin as a % of revenue not tried yet
worked example
Revenue is $45,000 and net income is $10,125. What is the net margin?
Answer: 22.5%
- Margin = net income ÷ revenue = $10,125 ÷ $45,000 = 0.225 = 22.5%.
-
Did the margin improve? not tried yet
worked example
Revenue is $50,000 with $17,500 of gross profit one month, then $60,000 with $19,800 the next. What happened to the gross margin?
- It stayed the same
- You can't tell without the cost lines
- It rose
- It fell
Answer: It fell
- Margin 1 = $17,500 ÷ $50,000 = 35%; margin 2 = $19,800 ÷ $60,000 = 33%.
- More gross-profit dollars can still mean less profit per sales dollar.
-
Sales up, profit down? not tried yet
worked example
Revenue rises from $27,000 to $33,750. Gross margin falls from 55% to 51%; operating expenses rise from $6,000 to $7,000. What is the new operating profit? (Use a minus sign for a loss.)
Answer: $10,212.50
- New gross profit = $33,750 × 51% = $17,212.50.
- New operating profit = $17,212.50 − $7,000 = $10,212.50 (it was $14,850 − $6,000 = $8,850).
-
Combined margin of two parts not tried yet
worked example
Division A has $22,000 of revenue at a 40% gross margin. Division B has $33,000 at 22%. What is the combined gross margin?
Answer: 29.2%
- Gross profit: A = $22,000 × 40% = $8,800; B = $33,000 × 22% = $7,260.
- Combined = ($8,800 + $7,260) ÷ $55,000 = 29.2%.
rest ladder
- 1 day
- 3 days
- 7 days
- 14 days
- 30 days
- 60 days
- mastered · every 90 days