Finance Train

Home

Learn

Getting Started

Python

R Programming $Quantitative Foundations$ Quantitative Foundations

Data Analysis

Machine Learning

Finance Apps

Blog Tools Membership

Performance Measures of a Company | Finance Train

Back to Course

Understanding Income Statements

Public

21 lessons0%

Income Statement

Formats of Income Statements

Principles of Revenue Recognition

Revenue Recognition - Long-term Contracts

Revenue Recognition - Instalment Sales

Revenue Recognition - Barter Transactions

Expense Recognition

Inventory Expense Recognition

Depreciation Expense Recognition

Amortization Expense Recognition

Bad Debt Expense and Warranty Expense Recognition

Financial Reporting of Non-recurring Items

Operating and Non-operating Components of Income Statement

How to Calculate Basic Earnings Per Share (EPS)

Impact of Stock Dividends and Stock Splits on Earnings Per Share (EPS)

Diluted EPS

Calculation of Diluted EPS (Convertible Preferred Stock)

Calculation of Diluted EPS (Convertible Debt)

Common Size Income Statement

Performance Measures of a Company

Comprehensive Income

Course Resources

Quizzes

Lesson 20 of 21

Performance Measures of a Company

Previous Lesson

Common Size Income Statement

Next Lesson

Comprehensive Income

AI Instructor

Hello, how can I help today?

Ask questions about this lesson and get instant answers.

Two commonly used measures of profitability of a company include Gross Profit Margin and Net Profit Margin.

Gross Profit Margin

Gross Profit Margin = (Gross Profit) ÷ (Gross Sales)

Gross profit margin measures gross profit as a percentage of gross revenue. This helps capture profit as a percentage of revenue, and helps assess components that affect profitability.

Net Profit Margin

Net Profit Margin = (Net Profit) ÷ (Gross Sales)

When net profit or the bottom line, profit after subtracting all costs is shown as a percentage of gross sales we call it net profit margin. This margin varies from industry to industry. For example a 5-6% profit in the steel manufacturing industry is considered very good, but poor for the pharmaceutical industry. It also needs to be considered with that firm’s historical performance.