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What is bank margin. What is margin in trading? Margin in banking

It happens that if you want to start doing a certain business, you lack knowledge in this area. First, let's look at the basic terms and their meanings. Many new entrepreneurs have no idea what margin is. This concept is broad and different areas activity it has different meanings.

Margin is usually called the difference between the selling price of goods and their cost, quotes on stock exchanges and interest rates. This term is widely used in banking, trading and risk insurance. Each area has characteristic nuances. It can be calculated both in absolute values and as a percentage.

So what is margin in trading? In economic theory, this is the difference between two criteria for a product - price and . In this case, it is calculated using the following formula:

Margin = (product price - cost) / product price x 100%.

The indicators in the formula can be expressed both in rubles and in other absolute values (dollars, euros).

When analyzing the activities of an enterprise, the economist-analyst's main interest is the gross margin, which is calculated as the difference between the company's revenue from sales of products and additional costs. These also include variable costs, which are directly dependent on the volume of products produced. The size of the gross margin is directly proportional to the amount from which fixed development funds (capital) are formed.

It should be clarified that this concept is Russian Federation has differences from the meaning of the term in Europe. There, margin is understood as the percentage rate of the ratio of profit to sales of goods at the selling price. This value is used for relative assessment of the efficiency of economic trading activities companies. In Russia, margin is usually called the net profit from a transaction, that is, income from sales minus the cost of goods and other costs.

Application of margin in banking

Let's consider a term in this area. The concept of credit margin is applicable here - the difference between the contractual cost of the goods and the actual amount that is issued to the borrower. All funds under the transaction are specified in the loan agreement. directly depends on the difference between interest rates on loans and deposits). Net interest margin is perfect for these purposes. It is calculated as the difference between the net interest income of a credit institution (obtained through investments and lending) and the rate on liabilities or capital.

When we're talking about, a guarantee margin is used, the formula of which is calculated as the difference between the value of the pledged property or Money and the size of the loan.

Use in exchange activities

The use of variation margin on exchanges is primarily associated with futures trading. In this case, its name can be explained by constant fluctuations, or changes. The calculation is made from the moment the position is opened.

For example, we purchased a futures contract at a price of 150,000 points on the RTS index, and a few minutes later it increased to 150,100 points. In this case, the margin size is 150100 – 150000 = 100 points. When converting this parameter into rubles, you get approximately 67 rubles. If you do not take profit and keep the position open, at the end of the trading session (evening clearing) the variation margin will turn into accumulated income. On the next day of trading, its accrual will begin again.

In other words, if we kept the position open for the entire duration of one trading session, the profit or loss on the transaction will be equal to the margin. The position was not closed for several sessions - the result will be the sum of the margin values for each past day. In this case, we can conclude whether we have set the right direction. Profit on the selected time interval will confirm this. Negative meaning means that the trading account has suffered losses.

The difference between margin and markup

Exchange margin is a specific concept, as it is used only in trading. Trading margin is the most common term in many industries. However, there are a lot of misconceptions among non-professionals. One of them is equating it to the trade margin.

It is not difficult to identify the difference between the two concepts. The margin indicator is the ratio of profit to market price product. The markup is the ratio of the profit of a product to its cost.

The product was bought for 150 monetary units and sold for 200. Calculating the markup is very simple: (200-150)/150 = 0.333(3), that is, 33% of the cost of production.

We calculate the margin:

(200-150):200=0.25. It amounted to 25% of the market value of the goods.

What's the difference between margin and profit?

As mentioned earlier, this concept is different in Russia and the EU countries. We have already considered the European method of calculation. In the Russian Federation, margin is considered an analogue of net profit, so there is no difference in their calculations. However, it should be borne in mind that we are talking about profit, and not about trade margins.

It is important to know the differences between economic terms and indicators. The concept of margin is used to calculate the most important financial indicators. This is necessary when working with securities, in banking, stock exchanges. For a trader, the size of the margin provided by the broker plays a huge role. When analyzing sales profit, it is compared with the markup retail.

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For the favorable life of the company and the effective functioning of all its financial processes, it is necessary to have all the information on the income, expenses and expenses of the company.

Often various factors Pricing calls profit in one word and confuses them together. Let's take a closer look at two such coefficients - margin and markup.

What is margin and markup

Most people believe that there is no difference between margin and markup and often confuse or combine their indicators. Our article will help you understand the difference between markup and margin.

Margin

Economics textbooks present several definitions of margin, and there are even more on the Internet. Let's consider one of them.

Margin is the difference between the final price of a product and its cost.

Expressed as a percentage of the final price for which the product was sold or as the difference in profit per unit of product. First of all, margin is an indicator of profitability.

This term is used not only in trading, but also in stock exchange, banking and insurance practice.

In general usage, the word margin refers to the difference between indicators.

In order to obtain information about financial activities enterprises calculate the following concepts:

Marginal income is one of the types of profit, showing the difference between revenue and variable costs. Necessary for drawing conclusions about the share of variable costs in revenue.

Gross margin is the ratio of revenue and fixed or variable costs. Used to analyze profits taking into account costs.

The concept of gross margin differs in Russia and Europe, due to the characteristics of financial systems. In Russia, this is the profit received by the company during the sale of products, as well as variable costs for the purchase of raw materials, production, storage and delivery of goods. Calculated using the following formula:

Gross margin = Income received from sales of products – Costs of production, storage, etc.

To obtain information about the current financial condition of organizations, this indicator is calculated.

In European countries, gross margin is the percentage of the company's total profit from sales of products, after paying all mandatory cash costs.

Interest margin is the ratio of general and variable costs to revenue.

Margin is usually calculated at the end of the reporting period - month or quarter. Companies that are confident in the market make payments once at the end of the year.

The profitability of a product is reflected by such an indicator as margin. It is calculated to determine the amount of sales growth and for the most effective management pricing.

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Extra charge

Let's move on to defining the markup. It is used to name several quantities:

The amount added to the original cost of a product when it is sold.
Retailer profit.
The difference between the retail and wholesale cost of products.

The markup can be specified in the contract if the supplier (manufacturer) agrees to additional conditions of the intermediary (buyer).

Established to cover the costs of production, storage and delivery of products.

Its value is set by the end seller, based on the current state of the market, the presence of competitors and the level of demand for the products sold.

It is important to consider the competitive advantages of both the product on the market and the selling organization.

To determine the correct markup, carefully calculate the costs your company incurs. Consider everything: costs of raw materials, production, storage, delivery of goods, and remuneration of employees.

Depending on the sales volume, the markup may vary: for large volumes, the final price is low, for small volumes, the final price is high. To obtain the greatest profit, it is necessary to determine the added value of products that helps maintain a balance between sales volume and product prices.

Correctly established added value covers the funds spent on a unit of goods and brings profit above these costs. This factor makes it clear how much profit is received from the invested funds.

Remember that the current legislation of the Russian Federation does not limit most products maximum size added value, and leaves it to the company to determine this indicator itself.

These are food products for children, medical products, medications, catering products in schools, colleges and universities, goods that are sold in the regions of the Far North.

The difference between margin and markup: calculating indicators

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Margin = (Final cost of goods – Cost of goods) / Final cost of goods * 100%

Markup = (Final cost of goods – Cost of goods) / Cost of goods * 100%

Let's look at a clear example:

The cost of the product is 50.
The final price of the product is 80.

We get:

Margin = (80 – 50) / 80 * 100% = 37.5%
Markup = (80 – 50) / 50 * 100% = 60%

From the calculations it follows that the margin is the company’s total profit after deducting all necessary costs, and the markup is the added cost to the cost.

If at least one of these factors is known, then the second can be calculated:

Markup = Margin / (100 – Margin) * 100%
Margin = Markup / (100 + Markup) * 100%

Let’s take a margin equal to 25 as a condition, and a markup of 20, it turns out:

Markup = 20 / (100 – 20) * 100% = 25
Margin = 25 / (100 + 25) * 100% = 20

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The difference between margin and markup

The margin cannot be 100%, but the added value can.

Margin is an indicator of income after covering mandatory costs. Markup is an additional price for a product.

The calculation of the margin depends on the total profit of the enterprise, and the markup - on the original cost of the goods.

The higher the markup, the higher the margin, but the second factor is always lower than the first.

Finally

The financial activities of the enterprise are most important element his existence.

It is necessary to carry out all the calculations that will help find weak spots in the budget and take the right path in pricing.

It is important to know what margin and markup are and how they differ from each other. These indicators are an effective tool for analyzing the financial condition of an enterprise.

Now you know, if your competitors say: “Our company operates with a margin of 150%,” then they do not distinguish between markup and margin. Therefore, you already have one advantage over them.

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Source: http://lady-investicii.ru/articles/biznes/otlichiya-marzhi-ot-naczenki.html

What is margin and how to calculate it? Detailed overview of the concept for beginners + calculation formulas

03/17/2017 To the procurement participant

Hello, dear colleague! In today's article we will talk about such a well-known economic term as margin.

Many novice entrepreneurs, as well as procurement participants, have no idea what it is and how it is calculated.

This term has different meanings depending on the area in which it is used.

Therefore, in this article we will look at the most common types of margin and dwell in detail on margin in trading, because It is this that is of greatest interest to suppliers participating in government and commercial tenders.

1. What is margin in simple words?

The term “margin” is most often found in areas such as trading, stock trading, insurance and banking. Depending on the field of activity in which this term is used, it may have its own specifics.

Margin(from the English Margin - difference, advantage) - the difference between the prices of goods, securities rates, interest rates and other indicators. Such a difference can be expressed both in absolute values (for example, ruble, dollar, euro) and in percentages (%).

In simple words, margin in trade is the difference between the cost of a product (the cost of its manufacture or purchase price) and its final (selling) price. Those. this is some kind of performance indicator economic activity a specific company or entrepreneur.

IN in this case This is a relative value, expressed in % and determined by the following formula:

M = P/D * 100%,

P - profit, which is determined by the formula:

P = selling price - cost

D - income (selling price).

In industry, the margin rate is 20% , and in trade – 30% .

However, I would like to note that the margin in our and Western understanding is very different. For European colleagues, it is the ratio of profit from the sale of a product to its selling price. For our calculations, we use net profit, namely (selling price - cost).

2. Types of margin

In this section of the article we will look at the most common types of margin. So let's get started...

2.1 Gross margin

Gross Margin Gross margin is the percentage of a company's total revenue that it retains after incurring direct costs associated with the production of its goods and services.

Gross margin is calculated using the following formula:

VM = (VP/OP) *100%,

VP - gross profit, which is defined as:

VP = OP - SS

OP - sales volume (revenue);
CC - cost of goods sold;

Thus, the higher a company’s VM indicator, the more funds the company saves per ruble of sales to service its other expenses and obligations.

The ratio of VM to the amount of revenue from the sale of goods is called the gross margin ratio.

2.2 Profit margin

There is another concept that is similar to gross margin. This concept is profit margin. This indicator determines the profitability of sales, i.e. share of profit in the company's total revenue.

2.3 Variation margin

Variation margin- the amount paid/received by a bank or a participant in trading on an exchange in connection with a change in the monetary obligation for one position as a result of its adjustment by the market.

This term is used in exchange activities. In general, there are a lot of calculators for stock traders to calculate margin. You can easily find them on the Internet using this search query.

2.4 Net interest margin (bank interest margin)

Net interest margin- one of the key indicators for assessing the efficiency of banking activities. NIM is defined as the ratio of the difference between interest (commission) income and interest (commission) expenses to the assets of a financial organization.

The formula for calculating net interest margin is as follows:

NPM = (DP - RP)/BP,

DP - interest (commission) income; RP - interest (commission) expenses;

AD - income-generating assets.

As a rule, NIM indicators of financial institutions can be found in open sources. This indicator is very important for assessing the stability of a financial organization when opening an account with it.

2.5 Security margin

Guarantee Margin- this is the difference between the value of the collateral and the amount of the loan issued.

2.6 Credit margin

Credit margin- the difference between the estimated value of the goods and the amount of credit (loan) issued financial institution to purchase this product.

2.7 Bank margin

Bank margin(bank margin) is the difference between credit and deposit interest rates, credit rates for individual borrowers, or interest rates on active and passive transactions.

The BM indicator is influenced by the terms of loans issued, the shelf life of deposits (deposits), as well as interest on these loans or deposits.

2.8 Front and back margin

These two terms should be considered together because they are connected to each other

Front margin is the profit from the markup, and back margin is the profit received by the company from discounts, promotions and bonuses.

3. Margin and profit: what's the difference?

Some experts are inclined to believe that margin and profit are equivalent concepts. However, in practice these concepts differ from each other.

Margin is the difference between indicators, and profit is the final financial result. The profit calculation formula is given below:

Profit = B – SP – CI – UZ – PU + PP – VR + VD – PR + PD

B - revenue; SP - cost of production; CI - commercial costs; LM - management costs; PU - interest paid; PP - interest received; VR - unrealized expenses; UD - unrealized income; PR - other expenses;

PD - other income.

After this, income tax is charged on the resulting value. And after deducting this tax it turns out - net profit.

To summarize all of the above, we can say that when calculating the margin, only one type of cost is taken into account - variable costs, which are included in the cost of production. And when calculating profit, all expenses and income that the company incurs in the production of its products (or provision of services) are taken into account.

4. What is the difference between margin and markup?

Very often, margin is mistakenly confused with trading margin. Extra charge- the ratio of profit from the sale of a product to its cost. To avoid any more confusion, remember one simple rule:

Let's get on specific example Let's try to determine the difference.

Suppose you purchased a product for 1000 rubles and sold it for 1500 rubles. Those. the size of the markup in our case was:

H = (1500-1000)/1000 * 100% = 50%

Now let's determine the margin size:

M = (1500-1000)/1500 * 100% = 33.3%

For clarity, the relationship between margin and markup indicators is shown in the table below:

In order to better understand the difference between these two concepts, I suggest you watch a short video:

5. Conclusion

As you can already understand, margin is an analytical tool for assessing the performance of a company (with the exception of stock trading).

And before increasing production or introducing a new product or service to the market, it is necessary to estimate the initial value of the margin.

If you increase the selling price of a product, but the margin does not increase, then this only means that the cost of its production is also increasing. And with such dynamics, there is a risk of being at a loss.

That's probably all. Hopefully, you now have the necessary understanding of what margin is and how it is calculated.

Source: http://zakupkihelp.ru/uchastniku-zakupok/chto-takoe-marzha.html

What is margin

Many people come across the concept of “margin,” but often do not fully understand what it means. We will try to correct the situation and answer the question of what margin is in simple words, and we’ll also look at what types there are and how to calculate it.

Margin concept

Margin (eng. margin - difference, advantage) is an absolute indicator that reflects how the business operates.

Sometimes you can also find another name - gross profit. Its generalized concept shows what the difference is between any two indicators.

For example, economic or financial.

Important! If you are in doubt about whether to write walrus or margin, then know that from a grammatical point of view you need to write it with the letter “a”.

This word is used in a variety of areas. It is necessary to distinguish what margin is in trading, on stock exchanges, in insurance companies and banking institutions.

This term is used in many areas of human activity - there is a large number of its varieties. Let's look at the most widely used ones.

Gross Profit Margin

Gross or gross margin is the percentage of total revenue remaining after variable costs.

Such costs may be the purchase of raw materials for production, payment of wages to employees, spending money on marketing goods, etc.

She characterizes general work enterprise, determines its net profit, and is also used to calculate other quantities.

Operating profit margin

Operating margin is the ratio of a company's operating profit to its income. It indicates the amount of revenue in percentage, which remains with the company after taking into account the cost of the goods, as well as other related expenses.

Important! High indicators indicate good performance of the company. But be on the lookout because these numbers can be manipulated.

Net Profit Margin

Net margin is the ratio of a company's net profit to its revenue. It displays how many monetary units of profit the enterprise receives from one monetary unit revenue. After calculating it, it becomes clear how successfully the company copes with its expenses.

It should be noted that the value of the final indicator is influenced by the direction of the enterprise. For example, firms operating in the retail trade tend to have fairly small numbers, while large ones manufacturing enterprises have quite high numbers.

Interest

Interest margin is one of the important indicators activity of the bank, it characterizes the ratio of its income and expenditure parts. It is used to determine the profitability of loan transactions and whether the bank can cover its costs.

This variety can be absolute or relative. Its value may be affected by inflation rates, various kinds active operations, the relationship between the bank's capital and resources that are attracted from outside, etc.

Variational

Variation margin (VM) is a value that indicates the possible profit or loss for trading platforms. It is also the number by which the amount of funds taken as collateral during a trade transaction can increase or decrease.

If the trader correctly predicted the market movement, then this value will be positive. In the opposite situation it will be negative.

When the session ends, the running VM is added to the account or, vice versa, canceled.

If a trader holds his position for only one session, then the results of the trade transaction will be the same as the VM.

And if the trader holds his position long time, it will be added daily, and ultimately its indicators will not be the same as the total of the transaction.

Watch a video about what margin is:

Margin and Profit: What's the Difference?

Most people tend to think that the concepts of “margin” and “profit” are identical, and cannot understand the difference between them. However, even if it is insignificant, the difference is still present, and it is important to understand it, especially for people who use these concepts every day.

Recall that margin is the difference between a company's revenue and the cost of the goods it produces. To calculate it, only variable costs are taken into account without taking into account the rest.

Profit is the result of a company’s financial activities at the end of a certain period. That is, these are the funds that remain with the enterprise after taking into account all the costs of production and marketing of goods.

In other words, the margin can be calculated this way: subtract the cost of the product from the revenue. And when profit is calculated, in addition to the cost of the product, various costs, business management costs, interest paid or received, and other types of expenses are also taken into account.

By the way, such words as “back margin” (profit from discounts, bonuses and promotional offers) and “front margin” (profit from markups) are associated with profit.

What is the difference between margin and markup?

To understand the difference between margin and markup, you must first clarify these concepts. If everything is already clear with the first word, then with the second it is not entirely clear.

The markup is the difference between the cost price and the final price of the product. In theory, it should cover all costs: production, delivery, storage and sales.

Therefore, it is clear that the markup is an addition to the cost of production, and the margin does not take this cost into account during calculation.

Different difference. When calculating the markup, they take the difference between the cost of goods and the purchase price, and when calculating the margin, they take the difference between the company’s revenue after sales and the cost of goods.
Maximum volume. The markup has almost no restrictions, and it can be at least 100, at least 300 percent, but the margin cannot reach such figures.
Basis of calculation. When calculating the margin, the company's income is taken as the base, and when calculating the markup, the cost is taken.
Correspondence. Both quantities are always directly proportional to each other. The only thing is that the second indicator cannot exceed the first.

Margin and markup are quite common terms used not only by specialists, but also ordinary people V Everyday life, and now you know what their main differences are.

Margin calculation formula

Gross Margin reflects the difference between revenue and total costs. The indicator is necessary for analyzing profit taking into account cost and is calculated using the formula:

GP = TR - TC

Similarly, the difference between revenue and variable costs will be called Marginal income and is calculated by the formula:

CM = TR - VC

Gross Margin Ratio, equal to the ratio of gross margin to the amount of sales revenue:

KVM = GP / TR

Likewise Coefficient marginal income equal to the ratio of marginal income to the amount of sales revenue:

KMD = CM/TR

It is also called the contribution margin rate. For industrial enterprises The margin rate is 20%, for trading – 30%.

Interest margin shows the ratio of total costs to revenue (income).

GP = TC/TR

or variable costs to revenue:

CM = VC/TR

Margin in various areas

As we already mentioned, the concept of “margin” is used in many areas, and this may be why it can be difficult for an outsider to understand what it is. Let's take a closer look at where it is used and what definitions it gives.

In economics

Economists define it as the difference between the price of a product and its cost. That is, this is actually its main definition.

Important! In Europe, economists explain this concept as the percentage rate of the ratio of profit to product sales at the selling price and use it to understand whether the company’s activities are effective.

In general, when analyzing the results of a company’s work, the gross variety is most used, because it is it that has an impact on net profit, which is used for the further development of the enterprise by increasing fixed capital.

In banking

In banking documentation you can find such a term as credit margin. When a loan agreement is concluded, the amount of goods under this agreement and the amount actually paid to the borrower may be different. This difference is called credit.

When applying for a secured loan, there is a concept called the guarantee margin - the difference between the value of the property issued as collateral and the amount of funds issued.

Almost all banks lend and accept deposits. And in order for the bank to make a profit from this type of activity, different interest rates are set. The difference between the interest rate on loans and deposits is called the bank margin.

In exchange activities

On exchanges they use a variation variety. It is most often used on futures trading platforms.

From the name it is clear that it is changeable and cannot have the same meaning.

It can be positive if the trades were profitable, or negative if the trades turned out to be unprofitable.

Thus, we can conclude that the term “margin” is not so complicated. Now you can easily calculate it using the formula different kinds, marginal profit, its coefficient and most importantly, you have an idea in what areas this word is used and for what purpose.

Default. What are its consequences for the economy and people of our country?

Let's look at it in a separate article.

Beneficiaries or true owners of the business, who are they?

Source: http://svoedelo-kak.ru/finansy/marzha.html

Margin is the difference between... Economic terms. How to calculate margin

Economic terms are often ambiguous and confusing.

The meaning contained in them is intuitive, but rarely does anyone succeed in explaining it in publicly accessible words, without prior preparation. But there are exceptions to this rule.

It happens that a term is familiar, but upon in-depth study it becomes clear that absolutely all its meanings are known only to a narrow circle of professionals.

Everyone has heard, but few people know

Let’s take the term “margin” as an example. The word is simple and, one might say, ordinary. Very often it is present in the speech of people who are far from economics or stock trading.

Most believe that margin is the difference between any similar indicators. In daily communication, the word is used in the process of discussing trading profits.

Few people know absolutely all the meanings of this fairly broad concept.

However to modern man It is necessary to understand all the meanings of this term, so that at an unexpected moment you “don’t lose face.”

Margin in economics

Economic theory says that margin is the difference between the price of a product and its cost. In other words, it reflects how effectively the activities of the enterprise contribute to the transformation of income into profit.

Margin is a relative indicator and is expressed as a percentage.

Margin=Profit/Revenue*100.

The formula is quite simple, but in order not to get confused at the very beginning of studying the term, let's consider a simple example. The company operates with a margin of 30%, which means that in every ruble earned, 30 kopecks constitute net profit, and the remaining 70 kopecks are expenses.

Gross Margin

In analyzing the profitability of an enterprise, the main indicator of the result of the activities carried out is the gross margin. The formula for calculating it is the difference in revenue from product sales in reporting period and variable costs for the production of these products.

The level of gross margin alone does not allow for a full assessment of the financial condition of the enterprise. Also, with its help, it is impossible to fully analyze individual aspects of its activities.

This is an analytical indicator. It demonstrates how successful the company is as a whole.

Gross margin is created by the labor of the enterprise's employees spent on producing products or providing services.

It is worth noting one more nuance that must be taken into account when calculating such an indicator as “gross margin”.

The formula can also take into account income outside the operating economic activities of the enterprise.

These include writing off accounts receivable and payable, providing non-industrial services, income from housing and communal services, etc.

It is extremely important for an analyst to correctly calculate the gross margin, since this indicator forms the net profit of the enterprise, and subsequently development funds.

IN economic analysis There is another concept similar to gross margin, it is called “profit margin” and shows the profitability of sales. That is, the share of profit in total revenue.

Banks and margin

Bank profit and its sources demonstrate a number of indicators. To analyze the work of such institutions, it is customary to calculate as many as four different margin options:

Credit margin is directly related to work under loan agreements and is defined as the difference between the amount specified in the document and the amount actually issued.
Bank margin is calculated as the difference between interest rates on loans and deposits.
Net interest margin is a key indicator of banking performance. The formula for calculating it looks like the ratio of the difference in commission income and expenses for all operations to all bank assets. Net margin can be calculated based on all the bank’s assets, or only on those currently involved in work.
The guarantee margin is the difference between the estimated value of the collateral property and the amount issued to the borrower.

Such different meanings

Of course, economics does not like discrepancies, but in the case of understanding the meaning of the term “margin” this happens. Of course, on the territory of the same state, all analytical reports are completely consistent with each other.

However, the Russian understanding of the term “margin” in trading is very different from the European one. In the reports of foreign analysts, it represents the ratio of profit from the sale of a product to its selling price.

In this case, the margin is expressed as a percentage. This value is used for a relative assessment of the effectiveness of the company's trading activities.

It is worth noting that the European attitude towards calculating margins is fully consistent with the basics of economic theory, which were described above.

In Russia, this term is understood as net profit. That is, when making calculations, they simply replace one term with another.

For the most part, for our compatriots, margin is the difference between revenue from the sale of a product and overhead costs for its production (purchase), delivery, and sales. It is expressed in rubles or other currency convenient for settlements.

It can be added that the attitude towards margin among professionals is not much different from the principle of using the term in everyday life.

How does margin differ from trading margin?

There are a number of common misconceptions about the term “margin”. Some of them have already been described, but we have not yet touched on the most common one.

Most often, the margin indicator is confused with the trading margin. It's very easy to tell the difference between them. The markup is the ratio of profit to cost. We have already written above about how to calculate margin.

A clear example will help dispel any doubts that may arise.

Let’s say a company bought a product for 100 rubles and sold it for 150.

Let's calculate the trade margin: (150-100)/100=0.5. The calculation showed that the markup is 50% of the cost of the goods. In the case of margin, the calculations will look like this: (150-100)/150=0.33. The calculation showed a margin of 33.3%.

Correct analysis of indicators

For professional analyst It is very important not only to be able to calculate the indicator, but also to give a competent interpretation of it. This hard work which requires
great experience.

Why is this so important?

Financial indicators are quite conditional.

They are influenced by valuation methods, accounting principles, conditions in which the enterprise operates, changes in the purchasing power of the currency, etc.

Therefore, the obtained calculation result cannot be immediately interpreted as “bad” or “good”. Additional analysis should always be performed.

Margin on stock markets

Exchange margin is a very specific indicator.

In the professional slang of brokers and traders, it does not mean profit at all, as was the case in all the cases described above.

Margin on stock markets becomes a kind of collateral when making transactions, and the service of such trading is called “margin trading”.

The principle of margin trading is as follows: when concluding a transaction, the investor does not pay the entire contract amount in full, he uses borrowed funds from his broker, and only a small deposit is debited from his own account. If the outcome of the operation carried out by the investor is negative, the loss is covered from the security deposit. And in the opposite situation, the profit is credited to the same deposit.

Margin transactions provide the opportunity not only to make purchases using borrowed funds from the broker. The client may also sell borrowed securities. In this case, the debt will have to be repaid with the same securities, but their purchase is made a little later.

Each broker gives its investors the right to make margin transactions independently. At any time, he may refuse to provide such a service.

Benefits of Margin Trading

By participating in margin transactions, investors receive a number of benefits:

Possibility to trade on financial markets without having enough in the account large sums. It does margin trading highly profitable business. However, when participating in operations, one should not forget that the level of risk is also not small.
The opportunity to receive additional income when the market value of shares decreases (in cases where the client borrows securities from a broker).
To trade various currencies, it is not necessary to have funds in these particular currencies on your deposit.

Management of risks

To minimize the risk when concluding margin transactions, the broker assigns each of its investors a collateral amount and a margin level.

In each specific case, the calculation is made individually.

For example, if after a transaction there is a negative balance in the investor’s account, the margin level is determined by the following formula:

UrM=(DK+SA-ZI)/(DK+SA), where:

DK – investor’s funds deposited;

CA - the value of shares and other investor securities accepted by the broker as collateral;

ZI is the debt of the investor to the broker for the loan.

It is possible to carry out an investigation only if the margin level is at least 50%, and unless otherwise provided in the agreement with the client. According to general rules, the broker cannot enter into transactions that would result in the margin level falling below the established limit.

In addition to this requirement, for carrying out margin transactions on the stock markets, a number of conditions are put forward, designed to streamline and secure the relationship between the broker and the investor. The maximum amount of loss, debt repayment terms, conditions for changing the contract and much more are discussed.

Understand all the diversity of the term “margin” for short term It's hard enough. Unfortunately, it is impossible to talk about all areas of its application in one article. The above discussions indicate only the key points of its use.

To assess economic activity, they are used different indicators. The key is margin. In monetary terms, it is calculated as a markup. As a percentage, it is the ratio of the difference between sales price and cost to the sales price.

It is necessary to periodically evaluate the financial activities of an enterprise. This measure will help identify problems and see opportunities, find weaknesses and strengthen strong positions.

Margin is an economic indicator. It is used to estimate the amount of markup on the cost of production. It covers the costs of delivery, preparation, sorting and sale of goods that are not included in the cost, and also generates the profit of the enterprise.

It is often used to assess the profitability of an industry (oil refining):

Or justify making an important decision at a separate enterprise (“Auchan”):

It is calculated as part of an analysis of the company's financial condition.

Examples and formulas

The indicator can be expressed in monetary and percentage terms. You can count it either way. If expressed in rubles, then it will always be equal to the markup and is found according to the formula:

M = CPU - C, where

CP - selling price;
C - cost.
However, when calculating as a percentage, the following formula is used:

M = (CPU - C) / CPU x 100

Peculiarities:

cannot be 100% or more;
helps analyze processes in dynamics.

An increase in product prices should lead to an increase in margins. If this does not happen, then the cost is rising faster. And in order not to be at a loss, it is necessary to reconsider the pricing policy.

Attitude towards markup

Margin ≠ Markup when expressed as a percentage. The formula is the same with the only difference - the divisor is the cost of production:

N = (CP - C) / C x 100

How to find by markup

If you know the markup of a product as a percentage and another indicator, for example, the selling price, calculating the margin is not difficult.

Initial data:

markup 60%;
sale price - 2,000 rub.

We find the cost: C = 2000 / (1 + 60%) = 1,250 rubles.

Margin, respectively: M = (2,000 - 1,250)/2,000 * 100 = 37.5%

Summary

The indicator is useful for small enterprises and large corporations. It helps to assess the financial condition, allows you to identify problems in the pricing policy of the enterprise and take timely measures so as not to miss out on profits. It is calculated along with net and gross profit for individual products, product groups and the entire company as a whole.

Good afternoon, blog readers! The author of the blog, Ruslan Miftakhov, is in touch with you again. The question I get asked more and more is: what is margin? In this article, we will try to analyze this term and give the most understandable explanation.

From our material you can get basic information about margin.

Margin is, in simple words, the difference between the selling price and the cost.

It is very often confused with a markup, but there are also serious differences that should be taken into account when using the formula.

How can an enterprise determine the level of profitability of sales? This parameter is defined for this purpose. It indicates the operating efficiency and expected income of the company from its activities.

Margin is used in the analysis of the institution. While studying it, any specialist will be one of the first to calculate this parameter. It indicates the opportunity to make a profit from the company's activities.

It is important to consider that this term may have different meanings. For example, in Europe this indicator is used to calculate profit on product sales at the selling price. The parameter indicates the efficiency of the organization and the size of the markup; it is used in trade and economics.

In Russia, margin is defined as net profit minus cost. Therefore, definitions and formulas may vary among sources, as discussed in various videos.

How is it calculated?

Should this indicator be calculated? As mentioned above, there are several approaches to trading, it all depends on the nuances.

First formula:

(Final cost - cost) / cost x 100.
Example - a product costs 1000 rubles, and the cost of its production was 800.
We get 1000 – 800 = 200. Divide 200 by 1000 = 0.2 x 100 = 20 percent. That is, the margin will be 20% on this transaction.

There is another way to calculate:

The final cost is the cost price.

Same example: selling price 1000 rubles, costs 800.
It turns out 1000 – 800 = 200. In fact, the indicator is the same, only it is expressed not as a percentage, but as a monetary amount.

What's the difference with markup?

Margin is often confused with markup. There is a reason common features in the definition, so it is difficult for inexperienced people to understand what the difference is.

Markup is an addition to the cost of goods for subsequent sale. It is expressed as a percentage and indicates the expected profitability of selling a specific position. It is also often used in economic calculations in the field of trade.

Now let's look at the markup formula:

(Final cost - cost) / cost x 100.

We already see a significant difference - the division occurs by cost, and not by the final cost. Let’s take an example we’ve already used for clarity:

1000 – 800 = 200 / 800 = 0.25 x 100 = 25%

It turns out that in our example the margin is 20% and the markup is 25%.

Of course, people without economic education It’s difficult to understand all the intricacies and formulas, but in the article the analysis is carried out in the most accessible way and without complex terms.

How is it different from a markup? It is an indicator of cost coverage. Markup is a parameter indicating added value.

The first indicator is calculated taking into account the company's profit. Markup – based on final cost. I hope this information has helped you understand the specifics of these concepts.

For banks

In a bank, the concept of margin may also differ. It depends on the features of the calculation and the formulas used to determine the parameter.

The most commonly used difference is between interest on loans and deposits. Few people have delved deep into the banking industry and know where institutions get their capital from. A significant part of the funds raised are deposits from citizens and legal entities.

Deposits exist in any bank. This is a kind of investment, people transfer their money to the management of an organization so that it ensures their profitability. The bank issues loans and sets an interest rate.

Part of the profit goes to investors. The amount of costs for servicing obligations depends on the rates specified in the agreements. They are calculated by the bank itself, taking into account a number of factors:

is the income from loans issued by the Central Bank.
Reliability of the institution. The higher the level of trust and better financial condition, the lower the rate.
Competitors' offers. Banks are forced to compete with each other for depositors, attracting them not only with the level of reliability, but also with interest.

The scheme for calculating the loan rate is even more complex. It also includes the costs of servicing deposits. Margin is often referred to as the difference between the interest rate on loans and deposits, based on which the organization’s profit can be calculated.

There is another option. This term is often understood as the difference between the amount received by the client under a loan agreement and the amount of funds returned. Margin expresses total income bank from a specific transaction that the organization has benefited from during the term of the agreement.

Another type is the guarantee margin. Do you know about the existence of secured loans? The difference between the value of the collateral and the size of the loan issued falls under this concept.

On Forex

Speaking specifically about Forex, margin is the collateral that the trader transfers to the broker. When he does not have his own capital, he has to trade using borrowed funds.

A certain amount goes to the broker as collateral. If a trader closes a position with a drain, then the margin remains with him.

The main feature is that the margin decreases as the amount increases. This technique is used by brokers to increase activity in the market. It is more profitable for traders to use large sums, which affects the indices.

All the best, see you soon on the pages of our blog.

Best regards, Ruslan Miftakhov

Many people come across the concept of “margin,” but often do not fully understand what it means. We will try to correct the situation and give an answer to the question of what margin is in simple words, and we will also look at what types there are and how to calculate it.

Margin concept

Margin (eng. margin - difference, advantage) is an absolute indicator that reflects how the business operates. Sometimes you can also find another name - gross profit. Its generalized concept shows what the difference is between any two indicators. For example, economic or financial.

Important! If you are in doubt about whether to write walrus or margin, then know that from a grammatical point of view you need to write it with the letter “a”.

This word is used in a variety of areas. It is necessary to distinguish what margin is in trading, on stock exchanges, in insurance companies and banking institutions.

Main types

This term is used in many areas of human activity - there are a large number of its varieties. Let's look at the most widely used ones.

Gross Profit Margin

Gross or gross margin is the percentage of total revenue remaining after variable costs. Such costs can be the purchase of raw materials for production, payment of wages to employees, spending money on the sale of goods, etc. It characterizes the overall operation of the enterprise, determines its net profit, and is also used to calculate other values.

Operating profit margin

Operating margin is the ratio of a company's operating profit to its income. It indicates the percentage of revenue that remains with the company after taking into account the cost of goods, as well as other related expenses.

Important! High indicators indicate good performance of the company. But be on the lookout because these numbers can be manipulated.

Net Profit Margin

Net margin is the ratio of a company's net profit to its revenue. It displays how many monetary units of profit the company receives from one monetary unit of revenue. After calculating it, it becomes clear how successfully the company copes with its expenses.

It should be noted that the value of the final indicator is influenced by the direction of the enterprise. For example, firms operating in the retail trade usually have fairly small numbers, while large manufacturing enterprises have fairly high numbers.

Interest

Interest margin is one of the important indicators of a bank’s performance; it characterizes the ratio of its income and expense parts. It is used to determine the profitability of loan transactions and whether the bank can cover its costs.

This variety can be absolute or relative. Its value can be influenced by inflation rates, various types of active operations, the relationship between the bank’s capital and resources attracted from outside, etc.

Variational

Variation margin (VM) is a value that indicates the possible profit or loss on trading platforms. It is also the number by which the amount of funds taken as collateral during a trade transaction can increase or decrease.

If the trader correctly predicted the market movement, then this value will be positive. In the opposite situation it will be negative.

When the session ends, the running VM is added to the account or, vice versa, canceled.

If a trader holds his position for only one session, then the results of the trade transaction will be the same as the VM.

And if a trader holds his position for a long time, it will be added to daily, and ultimately its performance will not be the same as the outcome of the transaction.

Watch a video about what margin is:

Margin and Profit: What's the Difference?

By the way, such words as “back margin” (profit from discounts, bonuses and promotional offers) and “front margin” (profit from markups) are associated with profit.

What is the difference between margin and markup?

To understand the difference between margin and markup, you must first clarify these concepts. If everything is already clear with the first word, then with the second it is not entirely clear.

The markup is the difference between the cost price and the final price of the product. In theory, it should cover all costs: production, delivery, storage and sales.

Therefore, it is clear that the markup is an addition to the cost of production, and the margin does not take this cost into account during calculation.

Different difference. When calculating the markup, they take the difference between the cost of goods and the purchase price, and when calculating the margin, they take the difference between the company’s revenue after sales and the cost of goods.
Maximum volume. The markup has almost no restrictions, and it can be at least 100, at least 300 percent, but the margin cannot reach such figures.
Basis of calculation. When calculating the margin, the company's income is taken as the base, and when calculating the markup, the cost is taken.
Correspondence. Both quantities are always directly proportional to each other. The only thing is that the second indicator cannot exceed the first.

Margin and markup are quite common terms used not only by specialists, but also by ordinary people in everyday life, and now you know what their main differences are.

Margin calculation formula

Basic concepts:
G.P.(grossprofit) - gross margin. Reflects the difference between revenue and total costs.
C.M.(contribution margin) - marginal income (marginal profit). The difference between revenue from product sales and variable costs
TR(totalrevenue) – revenue. Income, the product of unit price and production and sales volume.
TC(totalcost) - total costs. Cost price, consisting of all costing items: materials, electricity, wage, depreciation, etc. They are divided into two types of costs – fixed and variable.
F.C.(fixed cost) — fixed costs. Costs that do not change when capacity (production volume) changes, for example, depreciation, director’s salary, etc.
V.C.(variablecost) - variable costs. Costs that increase/decrease due to changes in production volumes, for example, the earnings of key workers, raw materials, materials, etc.

Gross Margin reflects the difference between revenue and total costs. The indicator is necessary for analyzing profit taking into account cost and is calculated using the formula:

GP = TR - TC

Similarly, the difference between revenue and variable costs will be called Marginal income and is calculated by the formula:

CM = TR - VC

Using only the gross margin (marginal income) indicator, it is impossible to assess the overall financial condition of the enterprise. These indicators are usually used to calculate a number of other important indicators: contribution margin ratio and gross margin ratio.

Gross Margin Ratio , equal to the ratio of gross margin to the amount of sales revenue:

K VM = GP/TR

Likewise Marginal Income Ratio equal to the ratio of marginal income to the amount of sales revenue:

K MD = CM / TR

It is also called the contribution margin rate. For industrial enterprises the margin rate is 20%, for retail enterprises – 30%.

The gross margin ratio shows how much profit we will make, for example, from one dollar of revenue. If the gross margin ratio is 22%, this means that every dollar will bring us 22 cents in profit.
This value is important when it is necessary to make important decisions about enterprise management. It can be used to predict changes in profits during expected growth or decline in sales.

Interest margin shows the ratio of total costs to revenue (income).

GP = TC/TR

or variable costs to revenue:

CM = VC/TR

In economics

Economists define it as the difference between the price of a product and its cost. That is, this is actually its main definition.

In banking

When applying for a secured loan, there is a concept called the guarantee margin - the difference between the value of the property issued as collateral and the amount of funds issued.

In exchange activities

On exchanges they use a variation variety. It is most often used on futures trading platforms. From the name it is clear that it is changeable and cannot have the same meaning. It can be positive if the trades were profitable, or negative if the trades turned out to be unprofitable.

Thus, we can conclude that the term “margin” is not so complicated. Now you can easily calculate using the formula its various types, marginal profit, its coefficient and, most importantly, you have an idea in which areas this word is used and for what purpose.

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