This is simply because companies offering Software-as-a-Service (“SaaS”) don’t need to manufacture / design the service again and again to make a sale. To prove this point, let us examine the gross profit margins for a set of companies operating in the technology sector, more specifically, those that create application software.Īs we can see, these technology companies all have gross profit margins in excess of 84%. What is a Good Gross Profit Margin?Īs we have discussed in the previous section, it would not be prudent to compare gross profit margins across industries given that there can be a significant difference in the capital required for operations. This indicates that they could have considerably more operating expenses than Apple and are not doing as good a job as Apple when it comes to retaining profit from their day to day operations. While IBM’s gross profit margin was marginally better than Apple, their operating profit margin is considerably worse than Apple. While Microsoft’s operating profit margin still ranks first, what is interesting here is that not only is Apple ranked second, but their operating profit margin is over double that of IBM’s, and nearly quadruple that of HP’s. COGS should not include any indirect expenses, such as overhead costs, selling, general and administrative expenses.Īs we can see from the above image, Apple’s operating profit margin ranks second amongst its peers. It must include all direct expenditures including materials and labor related with the production costs. COGS, also referred to as cost of sales/services, is the amount of money required to manufacture the goods or services for sale.The revenue received by a company is usually listed on the first line of the income statement as revenue, sales, net sales, or net revenue Revenue refers to the amount of money a company receives in exchange for its goods and services or conversely, what a customer pays a company for its goods or services.Gross Profit Margin = (Revenue – COGS) / Revenue Gross profit margin is calculated using the following formula: Gross profit margin indicates the amount of profit made before deducting selling, general, and administrative costs.Gross profit margin equals net revenue minus the cost of goods sold (“COGS”), which includes direct materials, labor and equipment costs involved in production as well as utilities expenses related with operating the production facilities.The gross profit margin will vary widely by industry and company size and can be impacted by a multitude of factors. In other words, gross profit margin for a firm is equal to the result of its financial output, net of variable costs. The higher the gross profit margin, the more profit a company retains on each dollar of revenue generated. Gross profit margin measures the amount of revenue retention after accounting for costs linked with the production of goods and/or services.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |