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What is the difference between gross profit margin and operating profit margin?

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Question added by Deleted user
Date Posted: 2016/02/29
Panagiotis Vamvakos
by Panagiotis Vamvakos , Senior Category Manager , COSMOTE Group of Companies S.A

Gross profit margin is the ratio between the amount left after subtracting Cost of Goods Sold (COGS) from the total revenue of the company and the total revenue itself. 

 

For example, if a company has sales (revenue) of $800.000 and COGS $600.000, then the gross profit margin is ($800.000 - $600.000) / $800.000 = 25%

 

On the other hand, operating margin is the amount left after subtracting from the total revenuwe of a company all operating costs, including overheads, salaries, administration etc., i.e. includes indirect costs as well. 

Typically this cost is greater than COGS which includes only direct costs of the goods sold. 

 

This is a typical mistake companies do when costing and although gross margin seems fine, they are loosing money. 

Mikhail Vaskiyev
by Mikhail Vaskiyev , Director , Panasonic Marketing CIS Rep Office

In general Operating profit is the Gross Profit minus variable and fixed cost of sales

Rehan Qureshi
by Rehan Qureshi , Financial Consultant , Self Employeed

 Panagiotis Vamvakos has given a good answer above

Omar Saad Ibrahem Alhamadani
by Omar Saad Ibrahem Alhamadani , Snr. HR & Finance Officer , Sarri Zawetta Company

Thanks

Fully agree with answer given by Mr. Vamvakos

Rami Abbas
by Rami Abbas , Sales Manager , Al Houda Contracting and Real Estate Development

I agree with Mr.Panagiotis Vamvakos answer.

Sidrah Nadeem
by Sidrah Nadeem , Global Marketing Manager , Hill+Knowlton Strategies

Mr. Mikhail Vaskiyev has presented an extremely simple answer to the question.

Mohammed Amin Petiwala
by Mohammed Amin Petiwala , Finance and Investment Advisor , Special Economic Zone Authority Duqm

I agree to the above explanation by brother Panagiotis Vamvakos

I would like to add that GPM is a good indicator for comparing company's performance with its competitors. This indicator tells how efficient the company is in its core business such as procurement efficiency, inventory management skills, machinery efficiency etc?

Comparison at NPM with competitors indicate the efficiencies in managing business other than its core areas such as advertising, legacy costs, tax planning etc.

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