Personal Finance & Money Asked on January 28, 2021
This is a question about financial terms and definitions in English.
Gross Margin = Revenue - COGS
Gross Profit Margin = (Revenue - COGS) / COGS
In the first equation we also mean Profit (Gross Profit Margin = Revenue - COGS), don’t we?
Why does adding a word Profit (in Gross Profit Margin) turns a sum of money Revenue - COGS into a ratio (Revenue - COGS) / COGS?
Finance (and other professions I'm sure) often uses terms and phrases interchangeably and inconsistently, so it's not a function of the english language, but a function of these terms being used by fallable humans. "Gross profit" and "Gross margin" can be synonymous, and some use "gross margin" to mean the ratio. So it's not always clear exactly what these mean.
If you are confused by a term or phrase being used inconsistently, look at the context to see what it's referring to. For example, if an article says "Gizmo's gross margin was 22%", then obviously it's talking about a ratio.
Answered by D Stanley on January 28, 2021
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