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Gross Profit

In: Business and Management

Submitted By anilbh75
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Gross Margin
First in line of the analysis of your business P & L is to carefully evaluate its gross margin. This calculation is done by subtracting the company's cost of goods sold from sales and by dividing its result by sales. Cost of goods sold is best measured as a percentage and proper care should be exercised to ensure that the periods P & L has properly allocated all direct sales cost to cost of goods sold. Typically most all of these costs will vary proportionally to the amount of product/services sold and delivered. A proper and consistently applied cut-off of accounting data is critical to this evaluation as otherwise the data/margins are unduly skewed to start.

Pretax Margin

What your business nets in dollars and as a percent of sales are an essential part of understanding your business. A business pre-tax margin is determined by subtracting from sales, all cost of goods sold, personnel, sales and operating expenses. Knowledge of this margin is essential as it is a leading indicator of business future assets; liabilities and equity as well as the respective income taxes it/its owners will owe/be required to pay.

Net Margin/Net Income After Taxes

A company's net margin is what a business has made off of its base operations/business decisions reached during the year. It is what is earned after paying all of a business P & L charges, depreciation, interest and taxes to both the IRS and the respective states in which a business operates. To maintain a clear and adequate understanding of this in dollars, it is prudent to invest the needed time and resources to ensure that one has an adequate overview understanding of how their business is taxed. To that end, it is wise to be aware of several key components: • Does the business keep its internal books on an accrual basis and file the tax returns on a cash basis? Are the appending timing…...

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