Start with the P&L: every business is recorded this way
Before the definitions, look at the actual document they come from. Every company, from a lemonade stand to Walmart, records its results in a profit-and-loss statement with this exact shape. Here's one for a bakery doing $1M a year:
| Line | Amount | What it's called |
|---|---|---|
| Revenue | $1,000,000 | The "top line" |
| − Cost of goods sold (flour, sugar, bakers' hourly wages) | $600,000 | COGS |
| = Gross profit | $400,000 | Gross margin: 40% |
| − Operating expenses (rent, manager salaries, marketing) | $250,000 | Overhead / SG&A |
| = Operating profit | $150,000 | Operating margin: 15% |
| − Interest and taxes | $50,000 | |
| = Net income | $100,000 | The "bottom line": 10% net margin |
Read it top to bottom and the terms below stop being vocabulary and become locations: every P&L term is just a name for one of these lines or a ratio between two of them. When an interviewer says "margins are compressing," they're pointing at the gap between two lines shrinking.
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