Profit Margins

A measure of the profitability of a business. This depends on net asset turnover.

Gross Profit Margin

\[ \frac{Gross Profit}{Revenue} \]

Indicates how profitable the core business is. The only expense in this calculation is the cost of sales.

A GPM of 35% means for every pound of revenue, we get 35% gross profit.

This ratio is [see page 14, quite] variable:

It depends on volatile materials (resources)
Increasing market share (or finding competition) could reduce sales prices alongside the margin.

\[ \frac{Operating Profit}{Revenue} \]

Includes cost of sales/administration/distribution.

A OPM of 35% means for every pound of revenue, we get 35% operating profit.