Profitability ratios

The key figures for measuring profitability provide information on how well a company can generate returns from its business activities. And also, how these are related to assets or capital employed. The gross and profit margins are often analyzed in this context.

Gross Margin

A major indicator for companies, particularly for the efficiency of a company, is the gross margin, which indicates how much money remains for a company after deducting direct costs from net sales. A higher gross margin means that a company has more capital left over to pay other costs or pay off debts. With the gross margin, one can calculate how much the company retains from 1 CHF in sales. With a gross margin of 45%, the company thus achieves a gross profit of 0.45 CHF. Companies use their knowledge of the gross margin to measure how production costs correlate with sales.

Profit Margin

Of all profitability metrics, the profit margin is one of the most commonly used. The profit margin indicates the extent to which a company is profitable, i.e., whether it is making money or not. Figuratively, it shows, like the gross margin, how much is earned per 1 CHF, i.e., if the profit margin is 4%, the company generates a net profit of 0.04 CHF per 1 CHF. The profit margin is considered a standard measure worldwide. It simply shows how much profit a company generates and highlights this clearly. A negative profit margin may mean that the company is not generating enough revenue or is having difficulty covering its costs.