Q: What is the difference between "gross profit margin" and "markup"? —Tom C., Statesville, N.C.
A: As the folks at Enron and WorldCom demonstrated, these terms can mean pretty much whatever you want them to mean.
Subtle differences in accounting practices used to be reserved for industries that had legitimate reasons for doing things differently. A bank, and airline and a software company keep their books in slightly different ways because of the nature of how they make their money. But the underlying concepts are the same.
"Gross profit margin," for example, refers to a company's profit as a percentage of its total revenues. But the devil is in the details. What expenses are deducted before you get to "profit"? How do you book revenues? Without a national accounting oversight board -- with teeth -- companies have been free to massage these numbers pretty much as they see fit.
"Markup" is more informal. It's usually used to refer to the difference between, say, a wholesale and retail price. If you manufacture office chairs, sell them to dealers for $180 each and they sell them for $200, that's a $20 markup.
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