Types of Profit Margin

There are 3 types of Profit Margin namely;
• Gross Profit Margin
• Operating Profit Margin
• Net Profit Margin
Before we proceed, let us bring it to your notice that each type of Profit Margin tells Managers different things about the business/company.

Gross Profit Margin compares revenue to variable costs or cost of goods sold. It tells how much profit each product creates without fixed costs. This types of profit margin does not apply in service companies.
Gross Profit Margin = (Revenue-Cost of goods sold)/Revenue

Operating Profit Margin also known as earnings before interest and taxes (EBIT). It includes both variables and fixed costs. It does not include certain financial costs but does include all operating costs and overhead that includes personnel costs and administration along with cost of goods sold.
Operating Profit Margin = ( gross profit - selling and distribution costs - general administrative costs)/Revenue

Net Profit Margin is the bottom line. It measures the profitability of a company after accounting for all its costs. Net profit margin would indicate how much after-tax profit would a company make for every naira of revenue generated.
Net Profit Margin = (profit - interest - taxes)/Revenue

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