What is a walrus and how to calculate it. What is margin in simple words? What is marginality

Economic terms are often ambiguous and confusing. The meaning contained in them is intuitive, but rarely does anyone succeed in explaining it in publicly accessible words, without prior preparation. But there are exceptions to this rule. It happens that a term is familiar, but upon in-depth study it becomes clear that absolutely all its meanings are known only to a narrow circle of professionals.

Everyone has heard, but few people know

Let’s take the term “margin” as an example. The word is simple and, one might say, ordinary. Very often it is present in the speech of people who are far from economics or stock trading.

Most believe that margin is the difference between any similar indicators. In daily communication, the word is used in the process of discussing trading profits.

Few people know absolutely all the meanings of this fairly broad concept.

However to modern man It is necessary to understand all the meanings of this term, so that at an unexpected moment you “don’t lose face.”

Margin in economics

Economic theory says that margin is the difference between the price of a product and its cost. In other words, it reflects how effectively the activities of the enterprise contribute to the transformation of income into profit.

Margin is a relative indicator; it is expressed as a percentage.

Margin=Profit/Revenue*100.

The formula is quite simple, but in order not to get confused at the very beginning of studying the term, let's consider a simple example. The company operates with a margin of 30%, which means that in every ruble earned, 30 kopecks constitute net profit, and the remaining 70 kopecks are expenses.

Gross Margin

In analyzing the profitability of an enterprise, the main indicator of the result of the activities carried out is the gross margin. The formula for calculating it is the difference between revenue from sales of products during the reporting period and variable costs for the production of these products.

The level of gross margin alone does not allow for a full assessment of the financial condition of the enterprise. Also, with its help, it is impossible to fully analyze individual aspects of its activities. This is an analytical indicator. It demonstrates how successful the company is as a whole. is created through the labor of enterprise employees spent on the production of products or provision of services.

It is worth noting one more nuance that must be taken into account when calculating such an indicator as “gross margin”. The formula can also take into account income outside of sales economic activity enterprises. These include writing off accounts receivable and accounts payable, provision of non-industrial services, income from housing and communal services, etc.

It is extremely important for an analyst to correctly calculate the gross margin, since enterprises, and subsequently development funds, are formed from this indicator.

In economic analysis, there is another concept similar to gross margin, it is called “profit margin” and shows the profitability of sales. That is, the share of profit in total revenue.

Banks and margin

Bank profit and its sources demonstrate a number of indicators. To analyze the work of such institutions, it is customary to count as many as four various options margin:

Credit margin is directly related to work under loan agreements and is defined as the difference between the amount indicated in the document and the amount actually issued.

Bank margin is calculated as the difference between interest rates on loans and deposits.

Clean interest margin is key indicator efficiency of banking activities. The formula for its calculation looks like the ratio of the difference in commission income and expenses for all operations to all bank assets. Net margin can be calculated based on all bank assets, or only on those currently involved in work.

The guarantee margin is the difference between the estimated value of the collateral property and the amount issued to the borrower.

Such different meanings

Of course, economics does not like discrepancies, but in the case of understanding the meaning of the term “margin” this happens. Of course, on the territory of the same state, everyone is completely consistent with each other. However, the Russian understanding of the term “margin” in trade is very different from the European one. In the reports of foreign analysts, it represents the ratio of profit from the sale of a product to its selling price. In this case, the margin is expressed as a percentage. This value is used for a relative assessment of the effectiveness of the company's trading activities. It is worth noting that the European attitude towards calculating margins is fully consistent with the basics of economic theory, which were described above.

In Russia, this term is understood as net profit. That is, when making calculations, they simply replace one term with another. For the most part, for our compatriots, margin is the difference between revenue from the sale of a product and overhead costs for its production (purchase), delivery, and sales. It is expressed in rubles or other currency convenient for settlements. It can be added that the attitude towards margin among professionals is not much different from the principle of using the term in everyday life.

How does margin differ from trading margin?

There are a number of common misconceptions regarding the term “margin”. Some of them have already been described, but we have not yet touched on the most common one.

Most often, the margin indicator is confused with the trading margin. It's very easy to tell the difference between them. The markup is the ratio of profit to cost. We have already written above about how to calculate margin.

A clear example will help dispel any doubts that may arise.

Let’s say a company bought a product for 100 rubles and sold it for 150.

Let's calculate the trade margin: (150-100)/100=0.5. The calculation showed that the markup is 50% of the cost of the goods. In the case of margin, the calculations will look like this: (150-100)/150=0.33. The calculation showed a margin of 33.3%.

Correct analysis of indicators

For a professional analyst, it is very important not only to be able to calculate an indicator, but also to give a competent interpretation of it. This is a difficult job that requires
great experience.

Why is this so important?

Financial indicators are quite conditional. They are influenced by valuation methods, accounting principles, conditions in which the enterprise operates, changes in the purchasing power of the currency, etc. Therefore, the resulting calculation result cannot be immediately interpreted as “bad” or “good.” Additional analysis should always be performed.

Margin on stock markets

Exchange margin is a very specific indicator. In the professional slang of brokers and traders, it does not mean profit at all, as was the case in all the cases described above. Margin on stock markets becomes a kind of collateral when making transactions, and the service of such trading is called “margin trading”.

The principle of margin trading is as follows: when concluding a transaction, the investor does not pay the entire contract amount in full, he uses his broker, and only a small deposit is debited from his own account. If the outcome of the operation carried out by the investor is negative, the loss is covered from the security deposit. And in the opposite situation, the profit is credited to the same deposit.

Margin transactions provide the opportunity not only to make purchases using borrowed funds from the broker. The client may also sell borrowed securities. In this case, the debt will have to be repaid with the same securities, but their purchase is made a little later.

Each broker gives its investors the right to make margin transactions independently. At any time, he may refuse to provide such a service.

Benefits of Margin Trading

By participating in margin transactions, investors receive a number of benefits:

The ability to trade on financial markets without having large enough amounts in your account. This makes margin trading a highly profitable business. However, when participating in operations, one should not forget that the level of risk is also not small.
Opportunity to receive upon reduction market value shares (in cases where the client borrows securities from a broker).
To trade different currencies, it is not necessary to have funds in these particular currencies on your deposit.

Risk management

To minimize the risk when concluding margin transactions, the broker assigns each of its investors a collateral amount and a margin level. In each specific case, the calculation is made individually. For example, if after a transaction there is a negative balance in the investor’s account, the margin level is determined by the following formula:

UrM=(DK+SA-ZI)/(DK+SA), where:

DK - cash investor deposited;

CA - value of shares and others securities investor accepted by the broker as collateral;

ZI is the debt of the investor to the broker for the loan.

It is possible to carry out an investigation only if the margin level is at least 50%, and unless otherwise provided in the agreement with the client. According to general rules, the broker cannot enter into transactions that would result in the margin level falling below the established limit.

In addition to this requirement, for carrying out margin transactions on the stock markets, a number of conditions are put forward, designed to streamline and secure the relationship between the broker and the investor. The maximum amount of loss, debt repayment terms, conditions for changing the contract and much more are discussed.

It is quite difficult to understand all the diversity of the term “margin” in a short time. Unfortunately, it is impossible to talk about all areas of its application in one article. The above discussions indicate only the key points of its use.

Margin is one of the determining factors in pricing. Meanwhile, not every aspiring entrepreneur can explain the meaning of this word. Let's try to rectify the situation.

The concept of “margin” is used by specialists from all spheres of the economy. This is, as a rule, a relative value, which is an indicator. In trade, insurance, and banking, margin has its own specifics.

How to calculate margin

Economists understand margin as the difference between a product and its selling price. It serves as a reflection of the effectiveness of business activities, that is, an indicator of how successfully the company converts into.

Margin is a relative value expressed as a percentage. The margin calculation formula is as follows:

Profit/Revenue*100 = Margin

Let's give a simple example. It is known that the enterprise margin is 25%. From this we can conclude that every ruble of revenue brings the company 25 kopecks of profit. The remaining 75 kopecks relate to expenses.

What is gross margin

When assessing the profitability of a company, analysts pay attention to gross margin - one of the main indicators of a company's performance. Gross margin is determined by subtracting the cost of manufacturing a product from the revenue from its sale.

Knowing only the size of the gross margin, one cannot draw conclusions about the financial condition of the enterprise or evaluate a specific aspect of its activities. But using this indicator you can calculate other, no less important ones. In addition, gross margin, being an analytical indicator, gives an idea of the company's efficiency. The formation of gross margin occurs through the production of goods or provision of services by the company's employees. It is based on work.

It is important to note that the formula for calculating gross margin takes into account income that does not result from the sale of goods or the provision of services. Non-operating income is the result of:

writing off debts (receivables/creditors);
measures to organize housing and communal services;
provision of non-industrial services.

Once you know the gross margin, you can also know the net profit.

Gross margin also serves as the basis for the formation of development funds.

Talking about financial results, economists give credit to the profit margin, which is a measure of the profitability of sales.

Profit Margin is the percentage of profit in the total capital or revenue of the enterprise.

Margin in banking

Analysis of the activities of banks and the sources of their profits involves the calculation of four margin options. Let's look at each of them:

1. Banking margin, that is, the difference between loan and deposit rates.
2. Credit margin, or the difference between the amount fixed in the contract and the amount actually issued to the client.
3. Guarantee margin– the difference between the value of the collateral and the amount of the loan issued.
4. Net interest margin (NIM)– one of the main indicators of work success banking institution. To calculate it, use the following formula:
NIM = (Fees and Fees) / Assets
When calculating the net interest margin, all assets without exception can be taken into account or only those that are currently in use (generating income).

Margin and trading margin: what is the difference

Oddly enough, not everyone sees the difference between these concepts. Therefore, one is often replaced by another. To understand the differences between them once and for all, let’s remember the formula for calculating margin:

Profit/Revenue*100 = Margin

(Sales price – Cost)/Revenue*100 = Margin

As for the formula for calculating the markup, it looks like this:

(Selling price – Cost)/Cost*100 = Trade margin

For clarity, let's give a simple example. The product is purchased by the company for 200 rubles and sold for 250.

So, here is what the margin will be in this case: (250 – 200)/250*100 = 20%.

But what will be the trade margin: (250 – 200)/200*100 = 25%.

The concept of margin is closely related to profitability. In a broad sense, margin is the difference between what is received and what is given. However, margin is not the only parameter used to determine efficiency. By calculating the margin, you can find out other important indicators of the enterprise’s economic activity.

An indicator of the efficiency of a credit institution and the profitability of its operations, formed by the difference between the funds raised and the profit on their investments.

The most simple example margin is the difference between the relatively low interest rate on deposits and the higher interest rate on loans issued.

Effective products in terms of margin in the banking sector are considered to be consumer loans and credit cards. At the same time, issuing loans to company employees and representatives of partner banks have priority, since the risks for this category of borrowers are significantly lower and it is possible to fully check the borrower before providing him with money; Therefore, despite the relatively low margin of this procedure, it is beneficial for banks.

Margin can be characterized both in numerical terms (in rubles) and in percentage terms.

Types and indicators of bank margin

Depending on the product offered by the credit institution, the margin can be:

credit - the amount is the sum of the difference received from the amount issued under the loan and the amount received as a result of loan repayment;
guarantee - the amount consists of the difference between the value of the property pledged and the loan amount;
percentage - the value is the sum of the ratio of the difference between income and expenses as a percentage of the bank's assets (the indicator will depend on whether the bank's total assets are taken into account or only working ones).

The following factors may influence the bank margin:

conditions for opening deposits;
term and amount of interest on loans;
inflation rate;
structure of incoming resources;
percentage of active operations that generate net income;
economic situation in the country and in the world, etc.

Features of marginality in the field of banking services

The bank itself does not produce any new products. It makes a profit by wisely investing financial assets and providing loans to consumers. The main expenses of a credit organization are related to the payment of interest on deposits and ensuring the activities of the organization.

Therefore, the margin will be calculated not based on a unit of goods, but for a specific period, for example, a quarter, a year, etc.

The main task of the banking margin is to determine the effectiveness of the investment by the institution own funds. This is if we take the theory. But in practice, banks strive to increase the number of commission transactions, that is, those that do not require investment of their own funds, but will bring profit to the organization. We are talking, for example, about trading coins.

The second option is to add “hidden” commissions and risk insurance when issuing loans to clients. At the same time, as the loan amount increases, the size of commission transactions will increase.

This is the so-called transactional policy, which, according to research by ACRA analysts, will allow many banks to stay afloat, while those banks that relied on expensive liabilities from organizations and invested little will receive lower margins.

Thus, margin is an analytical tool that allows you to determine the efficiency of a credit institution. Its meaning can be changed either by elaborating the terms of the “old” product, introducing a transactional policy, or developing new proposals. In this case, you should proceed from clearly defined priorities: low risks and small profits or increasing the margin, attracting new, untested clients.

In the vast majority of cases, a person who decides to become an entrepreneur does not have sufficient knowledge in the field of doing business. First you need to try to understand the essence of the main financial and economic terms. Most novice businessmen have no idea what margin is. This term has a fairly broad interpretation, that is, for each individual field of activity the meaning may be slightly different.

Margin made simple

The term “margin” means the difference obtained after deducting the cost of goods from the selling price, interest rates from quotations established on exchanges. This concept is often found in the field of stock trading, as well as banking, trade and insurance. Each specific direction has characteristic nuances. The margin can be indicated in percentage or absolute values.

The term “margin” in trading is calculated using the following formula:

Margin=(Product cost-Cost price)/Product cost*100%

Each indicator necessary for the calculation, taken into account in the formula, can be presented in dollars, rubles and other absolute values.

In the course of analyzing the operation of an institution, the economist, who is an analyst, initially calculates the gross margin. This indicator represents the difference between the total revenue received from the sale of goods and the amount of additional costs. This type spending also includes costs of a variable nature, which are directly dependent on the presented volumes of manufactured goods. Net profit, which became the basis for the formation of fixed assets, is in direct proportion to the size of the gross margin.

It is also necessary to remember that the term “margin” in modern economic theory differs from the same concept, but in Europe. Abroad, the margin is considered a percentage rate that determines the ratio of the profit received by the company to the sales of manufactured products at the selling price. This value is used to establish an assessment of the level of performance of a specific organization in the trade and economic spheres. On the territory of the Russian Federation, margin represents the net profit received from a transaction, namely profit minus costs, including cost.

Bank margin

In the activities of bankers, a frequently encountered concept is the credit margin, which is considered the difference obtained after deducting the contract amount of the product from the amount received by the borrower in actual hands. IN loan agreement Each amount agreed upon in the transaction is recorded.

Bank profit directly depends on the volume of bank margin. To analyze the profitability of banking activities, an indicator such as “net interest margin” is suitable, calculated as the difference calculated between the capital and net interest income of a credit institution. The bank earns net interest income through lending and investing.

The term "guarantee margin" is considered when a bank provides a loan against collateral. This ratio is calculated by subtracting the loan amount from the price of the property pledged as collateral.

Margin and exchange activity

Variation margin is used to organize futures trading. Its name is explained by regular changes (variations). Margin calculation begins from the moment the position was opened.

For example, a futures contract was purchased, the cost of which was 150 thousand marks on the RTS index, after some time the price increased and amounted to 150.1 thousand. The variation margin in the situation under consideration will be equal to one hundred points or approximately sixty-seven rubles. Provided that no profit is taken and the position is kept open, after the end of the trading session the variation margin indicator will develop into the income accumulated over the time passed. Margin calculation starts anew every day.

To put it simply, margin will be equal to the profit or loss received from one position that was opened during one trading session. When a position remains open for several sessions, the total will be the sum of the margin figures for each individual day.

Differences from markup

The best known term is “trading margin”, which is found in many areas of activity. The distinctive, more complex concept of “exchange margin” can only be found on the exchange. However, many beginners are confused about the trading margin ratio, regardless of how often it is used. The main mistake is to equate the trading margin and trading margin.

It is quite easy to identify the differences between the two indicators. The term “margin” is defined as the ratio of the proceeds to the price established on the market. The markup is equal to the ratio of the profit received from the sale of products to the calculated cost.

Margin and profit

As mentioned above, the term “margin” is interpreted differently in the European Union countries and in Russia. On the territory of the Russian Federation, margin is a concept similar to the term "net profit", therefore there is no fundamental difference in calculating profit and margin. It is important to remember that we are talking about profit, but not about markup.

However, there are still differences between one indicator and another. The term "margin" is the most important analytical indicator used in stock exchanges, in banking. The amount of margin provided by the broker is of significant importance to the trader. When analyzing the income received, the margin can be compared with the retail trade markup.

What is margin

Margin in trading– this is a trade margin, a percentage added to the price to obtain the final result.

What is markup and margin in trading, as well as how they differ and what you should pay attention to when talking about them, the video clearly explains:

IN microeconomics margin(grossprofit - GP) - a type of profit that reflects difference between revenue and costs for manufactured products, work performed and services provided, or the difference between the price and the cost of a unit of goods. This type of profit coincides with the indicator “ profit from sales».

Also within economics of the company allocate marginal income(contribution margin - CM) is another type of profit that shows the difference between revenue and variable costs. This type of profit helps to draw conclusions about the share of variable costs in revenue.

IN financial sector under the term " margin» refers to the difference in interest rates, exchange rates and securities and interest rates. Almost all financial transactions are aimed at obtaining margin - additional profit from these differences.

For commercial banks margin– this is the difference between the interest on loans issued and deposits used. Margin and marginal income can be measured both in value terms and as a percentage (the ratio of variable costs to revenue).

On securities market under margin refers to collateral that can be left to obtain a loan, goods and other valuables. They are necessary for transactions on the securities market.

A margin loan differs from a traditional loan in that the collateral is only a portion of the loan amount or the proposed transaction amount. Typically the margin is up to 25% of the loan amount.

Margin also refers to the advance of cash provided when purchasing futures.

Gross and percentage margin

Another name for marginal income is the concept of “ gross margin"(grossprofit – GP). This indicator reflects the difference between revenue and total or variable costs. The indicator is necessary for analyzing profit taking into account cost.

Interest margin shows the ratio of total and variable costs to revenue (income). This type of profit reflects the share of costs in relation to revenue.

Revenue(TR– total revenue) – income, the product of the unit price and the volume of production and sales. Total costs (TC – totalcost) – cost price, consisting of all costing items (materials, electricity, wages, etc.).

Cost price are divided into two types of costs - fixed and variable.

TO fixed costs(FC – fixed cost) include those that do not change when capacity (production volume) changes, for example, depreciation, director’s salary, etc.

TO variable costs(VC – variable cost) include those that increase/decrease due to changes in production volumes, for example, the earnings of key workers, raw materials, supplies, etc.

Margin - calculation formula

Gross Margin

GP=TR-TC or CM=TR-VC

where GP is gross margin, CM is gross marginal income.

Interest margin calculated using the following formula:

GP=TC/TR orCM=VC/TR,

where GP is interest margin, CM is interest margin income.

where TR is revenue, P is the price of a unit of production in monetary terms, Q is the number of products sold in physical terms.

TC=FC+VC, VC=TC-FC

where TC is the total cost, FC is fixed costs, VC is variable costs.

Gross margin is calculated as the difference between income and costs, percentage margin is calculated as the ratio of costs to income.

After calculating the margin value, you can find contribution margin ratio, equal to the ratio of margin to revenue:

K md =GP/TR or K md =CM/TR,

where K md is the marginal income coefficient.

This indicator K md reflects the share of margin in the total revenue of the organization; it is also called rate of marginal income.

For industrial enterprises the margin rate is 20%, for retail enterprises – 30%. In general, the marginal income coefficient is equal to profitability of sales(by margin).

Video - profitability of sales, the difference between margin and markup: