Measuring Latrine Business Performance
Gross margin is generally calculated as:
Gross Margin = Net Sales – Cost of Goods Sold
For measuring gross margin per business per quarter Gross Margin = (Number of latrines sold * sale price of each latrine) – (number of latrines sold * per unit cost of raw material and labor).
The gross margin is important since it measures the first level of profit earned by the Latrine Business Owner (LBO).
None of the LBOs (except one whose cost exceeded revenues) incurred any loss, with the gross margin ranging from a minimum of $4 to a maximum of $32,961 per quarter.
Operating profit = Gross margin – overheads (or operating expenses) – depreciation and interest
Data for depreciation of machinery (which is very challenging to determine considering the same machinery is used for other purposes) and interest paid on loans have not been collected. Thus these have not been factored in the calculations, and instead of data for overheads, weighted average of commission for Sanitation Teachers and transport costs were included as ‘operating expenses.’
Thus in this case operating profit is calculated as:
Operating profit = Gross margin – (sales commission + transport cost)
This calculation gives the actual profit made by the business, since all the major costs are deducted from it. Whether the profit made is reinvested in the latrine business is another issue that needs to be tackled in the future.
Most of the LBOs made a profit, ranging from $4 to over $31,246 per quarter.
Operating Profit Ratio
Operating profit ratio = operating profit/net sales
This is important since the resulting ratio indicates how many cents of profit LBOs generated from every dollar of sales.