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How to Calculate a GAAP Margin

Original post by Matt McGew of Demand Media

Generally accepted accounting principles calculate a company's margin as revenue minus the cost of goods sold divided by revenue. This margin demonstrates the percentage of the company's revenues retained after deducting the costs directly associated with the revenue. You can manually calculate this GAAP margin using information from the company's financial statements.

Step 1

Determine the company's total sales revenues. For example, assume a company's revenues for the accounting period are $200,000.

Step 2

Determine the company's cost of goods sold. These represent the direct costs associated with the revenues. For example, assume the cost of goods sold is $100,000.

Step 3

Subtract the cost of goods sold from the sales revenue. Continuing the same example, it would be $200,000 minus $100,000 equals $100,000.

Step 4

Divide the figure from Step 3 by the sales revenue. Continuing the same example, $100,000 divided by $200,000 equals 0.50, or 50 percent. This figure represents the GAAP margin for the company.

                   

References

  • "Principles of Accounting"; Belverd Needles et al; 2010

About the Author

Since 1992 Matt McGew has provided content for on and offline businesses and publications. Previous work has appeared in the "Los Angeles Times," Travelocity and "GQ Magazine." McGew specializes in search engine optimization and has a Master of Arts in journalism from New York University.

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