Margin is the profit received by the enterprise in the process of trading

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:44

Margin is the difference in the value of goods at exchange trading between the price indicated in the bulletin and the purchase price. In other words, this is the profit that firms and companies receive in the process of bidding for a product of a certain category. This concept may refer, in addition to operations on the stock exchange, to operations in the trading, banking and insurance sectors. Only in this case, the margin is the difference in the price of goods, interest rates, currency and securities rates in a specific period of time.

Margin in this case acts as a specific allowance for market participants to receive additional income.

The concept of "profit margin" implies a relative income, which is calculated as a percentage of sales or capital. When using this term, one can judge the effectiveness of capital investments and other assets. This is a kind of profitability of the business.

Depending on the applied sphere, a different margin is obtained. These are credit, banking, interest, guarantee and supported.

In this case, the credit implies the calculation of the difference in the price of the goods, which is fixed inthe corresponding loan agreement, and the loan issued for the purchase of this product.

Guarantee margin is the difference between the loan collateral and the value of the loan body.

The margin maintained is the minimum amount on the special account of the buyer until the completion of the transaction.

Net interest margin (or banking) is one of the key indicators of banking activity. This ratio reflects the efficiency of active operations conducted by the bank. Calculated by the ratio of the difference between commission (interest) income and commission (interest) expenses to bank assets.

It should be noted that the calculation of the last type of margin is made in accordance with the size of the total bank assets or assets that bring him income. Many market participants calculate this indicator based on the amount of assets that generate income.

When marketing specialists and economists talk about margin, you need to remember the rules for calculating it. This calculation is made as finding the difference between the profitability ratio and directly the profit per unit of goods during the sale. Such a difference can be easily reconciled, so it is important that managers can easily switch from one ratio to another.

Thus, the margin ratio is calculated as the ratio of profit per unit of production to the selling price of this unit.

Managers also needhave knowledge of the margin when making any decisions in the marketing field. Margin is a key factor in marketing ROI, pricing, revenue forecasting, and customer profitability analysis.

The use of these indicators helps to quickly solve certain problems. An example is the determination of the size of profit in the presence of different output volumes. And with the use of marginal income, it becomes possible to see the contribution of a business entity to cover fixed costs and receive a certain profit.