Calculation of gross and net profit to turnover. - SS2 Commerce Lesson Note

Gross Profit Margin: Gross profit margin is the percentage of gross profit in relation to turnover. To calculate it, you need the figures for gross profit and turnover. The formula is:

 

Gross profit represents the profit made from business operations before deducting any expenses. Turnover refers to the total revenue generated from sales or providing services.

By dividing the gross profit by the turnover and multiplying it by 100, you can calculate the gross profit margin as a percentage of the turnover. This indicates the proportion of each dollar of turnover that is retained as gross profit.

Net Profit Margin: Net profit margin is the percentage of net profit in relation to turnover. To calculate it, you need the figures for net profit and turnover. The formula is:

 

Net profit represents the final profit earned after deducting all expenses, including operating expenses, taxes, interest, and other deductions, from the gross profit. Turnover refers to the total revenue generated.

By dividing the net profit by the turnover and multiplying it by 100, you can calculate the net profit margin as a percentage of the turnover. This indicates the proportion of each dollar of turnover that is retained as net profit after covering all expenses.

In simple terms, both gross profit margin and net profit margin express the profitability of a business in relation to its turnover. Gross profit margin focuses on the profit made from operations before deducting expenses, while net profit margin takes into account all expenses to provide a more comprehensive view of profitability.