Trading margin, profit and cash

A sale produces a positive margin and your supplier is waiting for payment. Does that gain mean the required money is already available?

Trading margin is sales of goods minus the purchase cost of the goods actually sold. Profit also includes other income and expenses for the period. Liquidity means funds available at a particular date.

In a fictional example, a GNF 10 million sale of goods costing 7 million produces a margin of 3 million. After another 1 million of expenses, simplified profit is 2 million, excluding tax and finance costs.

If the supplier requires 7 million on 10 October but the business has only 2 million available then, the shortfall is 5 million. A customer payment expected on 20 October arrives too late to cover that due date without another solution.

Mistakes to avoid

Do not confuse margin with net profit. Do not automatically treat all monthly purchases as the cost of goods sold: some goods may remain in inventory. A positive margin does not replace cash needed on the payment date.

Recommended actions

Check the cost of goods sold and the other expenses belonging to the period. Compare expected receipts with supplier due dates. Before approving expenditure, examine available funds and existing commitments.

Do your purchasing decisions rely on margin, profit or a verified cash calendar?