What is the Difference between Margin and Markup?
These two terms use the same inputs and analyze the same transaction. The main variance is that profit margin is used to find the difference between the sale price and cost of goods sold, while markup shows the increase in the cost of goods. Got it? No, don’t worry; we will explain in detail.
To find the profit margin, you must subtract the revenue from the cost of goods sold. -Therefore, for for-profit margin, the clue words are goods sold! In other words, how much you made after selling your product and discount the cost of the product once it is sold.
The markup is the price you decide to place on your products based on the cost of the products. So, how much more are you making in each product?
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The financial statement is the compilation of business information. Its main objective is to give you a better view of your business’s financial health. Even more, there are three main financial statements: balance sheet, cash flow statement, and income statement.
Each one of these statements gives specific information of several areas of your business that, when seen together, gives you a whole scenario of the business’s financial status. Thus, the statements can be made monthly, quarterly, or whenever is convenient for the stakeholders.
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The income statement, also known as a profit and loss statement, tells you if the business is making money or not. It reflects a business’s income in a particular period, a quarter, or a fiscal year. It shows the company’s revenues and expenses, or both. A good business with excellent financial management should increase revenues and decrease costs. Accordingly, revenue, expenses, and profit are the three most essential income statement elements.
Revenue indicates the sales a company had during a specific period. It is the most straightforward part of the statement, even though you can subdivide the revenues according to the information. For example, it can be divided into regions or business segments.
Talking about the Cost of Goods Sold is the same as the cost of service or sales. It includes the cost of producing the products and the services. There are two main parts of this cost:
- Direct labor
- Materials to create the good
The cost of Goods Sold only includes the expenditures that go into the production of each product or service you sell (e.g., wood, screws, paint, labor, etc.). You must exclude other costs like distribution expenses. Also, you cannot include the Operating Expenses in this equation. Those are two separate costs.
The financial statement shows all the cash incoming from its business activities and investments. Also, include the cash outflows to pay business financial responsibilities and investments.
It is part of the business balance sheet and a primary source of information for investors and analysts as it shows all the business transactions. This statement shows cash flow in three different ways: through investment, operations, and financing. When these three are added, you obtain the net cash flow.
Net Cash Flow = Operating Cash Flow + Cash Flow from Financial Activities (Net) + Cash Flow from Investing Activities (Net)
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