Connect with us

Business

How to calculate gross margin?

Published

on

How to calculate gross margin

Every business organization present in the society has a purpose, which is almost the same for every organization. The ultimate achievement of the company is decided by the profit that it retains at the end of every financial year. This year end analysis also makes way for the following year’s strategic planning.

What is gross margin?

Gross margin or Gross profit margin is the terminology used to calculate the profit that is being marked by the company for the efforts throughout the year.

It is calculated by finding out the difference between the cost of goods and the sales revenue divided by sales revenue, which in turn will give us the percentage of profit earned or loss incurred by the business firm.

The exact formulation stands at, The sales revenue minus cost of goods divided by the sales revenue will give us the exact percentile of the gross margin earned.

Use of Gross profit margin 

  • Companies mainly use gross margin to overlook the production overhead because that is where the capital is being spent. If the gross profit percentage is diminishing, the managers should look for the processing systems and analyse the cost reduction techniques like cutting cost on supplies and materials or choosing alternative production approaches etc.
  • Competitor analysis is another segment that gross margin is used for. The higher the margin, companies gain credibility and recognition in the society. For example, If both companies TPO and ZRD are providing trading terminal softwares and ZRD offers the software at one fifth the cost of TPO, the sales revenue of ZRD will boost up. In the efforts of competing with one another, TPO increases the sales value which further decreases the margin as the demand for the product has reduced. TPO has untowardly lost the market share and gross margin in the course.
  • It is best used to check the financial stability and growth of the company and used as a tool and an instrument to measure the cost incurred and the sales made out of the budget that was planned in the beginning of the financial year. If suppose, company A, has invested $15 million in the business and mid way through the commencement of business, the production head faces struggles of meeting other miscellaneous costs. He/she calculates the gross margin to arrive at the percentage which is dropping down which further leads to the assessment of the steps to be taken to retain revenue in spite of meeting all the additional expenses.
  • This financial instrument also helps in allocating of the factory overhead charges. When gross margin is viewed on a trend line, even the slightest of changes are visible. Wherein the corrections can be made by further investigation and settle the costs and expenses of the production process to achieve higher percentage of the margin.

The exact formulation stands at, The sales revenue minus cost of goods divided by the sales revenue will give us the exact percentile of the gross margin earned.

The importance of Gross margin 

Gross margin is a derivative of the functions of the company. It is crucial that every company needs to keep track of it’s performance for the survival of itself. Without gross margin, the operational and miscellaneous expenses would not be recognized.

However, it is widely encouraged to be correlated with the inventory turnover ratio. The higher the inventory ratio means that the assets management of the company is at an appreciating level. As the inventories and the production process are combined together, keeping record of both and maintaining the balance among these instruments will support the financial upgradation of the company in both monetary and goodwill terms.

 

Business

Robinhood plans confidential IPO filing as soon as March – Bloomberg News

Published

on

Robinhood plans confidential IPO filing as soon as March - Bloomberg News 1

(Reuters) – Online brokerage Robinhood, at the centre of this year’s retail trading frenzy, is planning to file confidentially for an initial public offering as soon as March, Bloomberg News reported late on Friday, citing sources.

The California-based brokerage has held talks in the past week with underwriters about moving forward with a filing within weeks, Bloomberg said.

Robinhood did not immediately respond to a request for comment.

Reuters reported last year that Robinhood has picked Goldman Sachs Group Inc to lead preparations for an initial public offering which could value it at more than $20 billion.

Robinhood was at the heart of a mania that gripped retail investors in late January following calls on Reddit thread WallStreetBets to trade certain stocks that were being heavily shorted by hedge funds.

The online brokerage tapped around $3.4 billion in funding after its finances were strained due to the massive trading in shares of companies such as GameStop Corp.

(Reporting by Ann Maria Shibu in Bengaluru; editing by Richard Pullin)

Continue Reading

Business

Analysis: How idled car factories super-charged a push for U.S. chip subsidies

Published

on

Analysis: How idled car factories super-charged a push for U.S. chip subsidies 2

By Stephen Nellis

(Reuters) – When President Joe Biden on Wednesday stood at a lectern holding a microchip and pledged to support $37 billion in federal subsidies for American semiconductor manufacturing, it marked a political breakthrough that happened much more quickly than industry insiders had expected.

For years, chip industry executives and U.S. government officials have been concerned about the slow drift of costly chip factories to Taiwan and Korea. While major American companies such as Qualcomm Inc and Nvidia Corp dominate their fields, they depend on factories abroad to build the chips they design.

As tensions with China heated up last year, U.S. lawmakers authorized manufacturing subsidies as part of an annual military spending bill due to concerns that depending on foreign factories for advanced chips posed national security risks. Yet funding for the subsidies was not guaranteed.

Then came the auto-chip crunch. Ford Motor Co said a lack of chips could slash a fifth of its first-quarter production and General Motors Co cut output across North America.

“It brings home very clearly the message that the semiconductor is really a critical component in a lot of the end products we take for granted,” said Mike Rosa, head of strategic and technical marketing for a group within semiconductor manufacturing toolmaker Applied Materials Inc that sells tools to automotive chip factories.

Within weeks, automakers joined chip companies calling for chip factory subsidies, and U.S. Senate Majority Leader Chuck Schumer and President Biden both pledged to fight for funding.

Industry backers now aim to be part of a package of legislation to counter China that Schumer hopes to bring to the Senate floor this spring. Still, all agree it will do little to solve the immediate auto-chip problem.

Headlines about idled car plants resonated with the public that had shrugged off abstract warnings in the past, said Jim Lewis, a senior fellow at the Center for Strategic and International Studies. Lawmakers, already worried that a promised infrastructure bill will not materialize this year, decided to push for quick solution.

“Nobody wants to be seen as soft on China. No one wants to tell the Ford workers in their district, ‘Sorry, can’t help,'” Lewis said. “It was one of those moments where everything aligned.”

The package includes matching funds for state and local chip-plant subsidies, a provision likely to heat up competition among states including Texas and Arizona to host big new chip plants that can cost as much as $20 billion.

The subsidies could benefit a factory in Arizona proposed by Taiwan Semiconductor Manufacturing Co and one in Texas eyed by Samsung Electronics Co Ltd, even though those factories would be geared toward high-end chips for smartphones and laptops, rather than simpler auto chips. And those factories would not come on line until 2023 or 2024, according to plans disclosed by the companies, the world’s two largest chip manufacturers.

In the longer term, a raft of U.S. companies are also poised to benefit. Any chipmakers that build factories will source many tools from American companies such as Applied, Lam Research Corp and KLA Corp.

Intel Corp, Micron Technology Inc and GlobalFoundries – which already have U.S. factory networks – will also likely benefit.

Smaller, specialty chip factories also could benefit.

“The recent chip shortage in the automotive industry has highlighted the need to strengthen the microelectronics supply chain in the U.S.,” said Thomas Sonderman, chief executive of SkyWater Technology, a Minnesota-based chipmaker that makes automotive and defense chips. “We believe that SkyWater is uniquely positioned due to our differentiated business model and status as a U.S.- owned and U.S.- operated pure play semiconductor contract manufacturer.”

Even with subsidies, the U.S. companies still must compete with low-cost Asian vendors over the long run, and the immediate auto chip troubles will probably persist.

Surya Iyer, a vice president at Minnesota-based Polar Semiconductor, which makes chips for automakers, said his factory is booked beyond capacity and has started to speed some orders up while slowing others down, to meet automakers’ needs as best it can.

“We are expecting this level of demand to continue at least for the next 12 months, maybe even longer,” he said.

(This story has been refiled to add attribution to quote in paragraph 9, add dropped words in paragraphs 10 and 17)

(Reporting by Stephen Nellis and Hyunjoo Jin in San Francisco and Alexandra Alper in Washington. Editing by Jonathan Weber and David Gregorio)

Continue Reading

Business

Atlantia disappointed with CDP bid for unit, continues talks

Published

on

Atlantia disappointed with CDP bid for unit, continues talks 3

By Francesca Landini and Stephen Jewkes

MILAN (Reuters) – Italy’s Atlantia said on Friday an offer by a consortium of investors led by state lender CDP for its 88% stake in Autostrade per l’Italia fell short of the mark and asked its top managers to see if the bid could be sweetened.

“The offer falls below expectations,” the Italian infrastructure group said in a statement, adding it had mandated the chief executive and the chairman to assess “the potential for the necessary substantial improvements” to the bid.

Italian state lender CDP, together with co-investors Macquarie and Blackstone, has presented a proposal valuing all of Autostrade per l’Italia at 9.1 billion euros ($11 billion).

The consortium also requested Atlantia guarantee up to 700 million euros in potential damage claims and another roughly 800 million euros for a pending legal case, making the bid less attractive than previously expected.

One source said the consortium estimated overall pending legal claims against Autostrade at 3 billion to 4 billion euros, adding the 700 million euro cap did not mean the amount would be detracted from the offer price from the start.

Earlier on Friday Atlantia’s minority investors TCI and Spinecap had called on Atlantia’s board to reject the offer, saying it undervalued the asset.

“No deal is better than a bad deal, especially a bad deal and a wrong price,” TCI Advisory Services partner Jonathan Amouyal said in a emailed comment to Reuters.

TCI, which holds an indirect stake of around 10% in Atlantia, repeated that the value for 100% of Autostrade should be no less than 12.5 billion euros.

The board will hold a further meeting in order to take a final decision on the offer in due time, Atlantia said.

The negotiations between Atlantia and the CDP-led consortium are part of an effort to end a political dispute over Autostrade’s motorway concession triggered by the collapse of a motorway bridge run by the unit.

(GRAPHIC – Atlantia share performance: https://fingfx.thomsonreuters.com/gfx/mkt/qzjpqggjdpx/image-1614331237501.png)

The bid expires on March 16, but the deadline could be extended in case Atlantia calls an extraordinary shareholders meeting (EGM) on the issue, according to one source with knowledge of the matter.

Shares in the group ended down 0,7%, after recovering some losses, as investors waited for the decision of the board.

Atlantia, which is controlled by the Benetton family, owns 88% of Autostrade, with Germany’s Allianz and funds DIF, EDF Invest and China’s Silk Road Fund holding the rest.

The group also kept open an alternative plan to demerge and sell its stake in Autostrade per l’Italia unit and called an EGM on March 29 to extend to end-July a deadline for offers for the demerged stake.

(Additional reporting by Stefano Bernabei, editing by Louise Heavens and Steve Orlofsky)

Continue Reading
Editorial & Advertiser disclosureOur website provides you with information, news, press releases, Opinion and advertorials on various financial products and services. This is not to be considered as financial advice and should be considered only for information purposes. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third party websites, affiliate sales networks, and may link to our advertising partners websites. Though we are tied up with various advertising and affiliate networks, this does not affect our analysis or opinion. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you, or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish sponsored articles or links, you may consider all articles or links hosted on our site as a partner endorsed link.

Call For Entries

Global Banking and Finance Review Awards Nominations 2021
2021 Awards now open. Click Here to Nominate

Latest Articles

Newsletters with Secrets & Analysis. Subscribe Now