Profit Margin Formula Profit\: Margin = \dfrac{Net\: Income}{Net\: Sales} The formula for calculating profit margin is simple and straightforward: divide a company’s net income from net sales. The net margin, by contrast, is only 14.8%, the sum of $12,124 of net income divided by $82,108 in revenue. This guide will cover formulas and examples, and even provide an Excel template you can use to calculate the numbers on your own. Below is the snapshot of Colgate’s Income Statement from 2007 to 2015. These examples highlight the importance of calculating net margin because it helps in comparing companies of different size and it measures performance efficiency of a company making it comparable to different companies of different sizes. The net profit margin formula looks at how much of a company's revenues are kept as net income. Umsatzrentabilität Formel Die Umsatzrendite lässt sich mit folgender Formel berechnen: Die Nettomarge ist daher bereits eine sehr gute Annäherung an den tatsächlichen Gewinn. Use of Net Profit Margin Formula. The net profit margin is calculated using the following formula: Net Profit Margin = Net Income / Revenue. The cost base of different industries is different. Now let’s look at some real world examples in the US retail industry. We take Net Profit in the numerator and Net Sales in the denominator. By applying the formula, $1 million divided by $25 million would result in a net profit margin of 4%. Pretax Profit Margin Formula . Net profit margin is a significant profitability ratio that calculates how much percentage of the company’s earnings is left after deducting all the operating and non operating expenses (also called net profit) in a given quarter/year. In reality, however, these items are not expected to repeat in future. .free_excel_div{background:#d9d9d9;font-size:16px;border-radius:7px;position:relative;margin:30px;padding:25px 25px 25px 45px}.free_excel_div:before{content:"";background:url(https://www.wallstreetmojo.com/assets/excel_icon.png) center center no-repeat #207245;width:70px;height:70px;position:absolute;top:50%;margin-top:-35px;left:-35px;border:5px solid #fff;border-radius:50%}, Using the formula of net margin, we get –. One common term is profit after tax. Gross profit margin is an analytical metric expressed as a company's net sales minus the cost of goods sold (COGS). Profit Margin Formula in Excel is an input formula in the final column the profit margin on sale will be calculated. It is probably the most important margin used by businesses to know the total profit percentage over a period of time. Net Profit Margin Formula. It is very easy and simple. To get the net income or profit of a business, you will subtract a company’s expenses from its total revenue. A declining margin might imply higher competition, reduced bargaining power, or inefficient cost base of a company. Profit percentage is similar to markup percentage when you calculate gross margin. Net profit margin (return on sales) is computed using this formula: Net Income ÷ Net Sales. It is important to note that "net sales" is used in the computation. Colgate’s Operating Profit = EBIT / Net Sales. It demonstrates the percentage of your revenue, as compared to company costs and expenses. For example, let’s say your company generates $200,000 in net income and net sales of $600,000. Profit margin is a ratio of profit divided by price, or revenue. Example: Profit Margin Formula in Excel calculation (120/200)100 to produce a 60 percent profit margin result. Example of Net Profit Margin Formula A company's income statement shows a net income of $1 million and operating revenues of $25 million. The net profit is also given, i.e., $30,000. There are three types of profit margins: gross, operating and net. The gross margin ratio helps businesses understand their profitability, considering gross profit and net sales. Learn more from the following articles –, Copyright © 2021. While it is arrived at through is calculated by deducting all … Profit Margin Formula: Net Profit Margin = Net Profit / Revenue. Second, the company might have several one-off items that reduce the net income and negatively affect the margin of the company. Here we have taken “net profit” as numerator because we want to focus on “net profit.” And we are dividing “net profit” by “net sales” because we are finding the proportion of “net profit” to “net sales.”. Für die Ermittlung der Nettomarge (englisch: “Net Margin” oder “Net Profit Margin”) werden zusätzlich die nicht produktspezifischen Kosten, sprich Gemeinkosten (bspw. We are comparing the net profit margin of Wal-Mart and Costco. That’s why it is important to look at all of the figures before ever judging the performance of a company only through this formula. Below is the snapshot of Colgate’s Income Statement from 2007 to 2015. Profit margin formula is used to calculate how much profit a product or business is. Ini memperhitungkan semua biaya yang dihadapi bisnis, bukan hanya harga pokok penjualan. Plugging this information into our net profit margin formula, we get: $97,500 net profit ÷ $500,000 revenue = 0.195 net profit margin, or 19.5% Keep in mind that you'll already have all of the variables calculated for you when you perform this calculation on an actual income statement. Net income is the total revenue minus expenses. Both net profit and sales or net sales figure is taken from income statement. Operating Profit Margin formula = Operating Profit / Net Sales * 100; Or, Operating Margin = $170,000 / $510,000 * 100 = 1/3 * 100 = 33.33%. Profit Percentage = Net Profit / Cost. This is always located at the bottom of the income statement hence the nickname “the bottom line.”. Firstly, gross margin is gross profit divided by net sales as shown in the table below. Profit margin formula is used to calculate how much profit a product or business is. To calculate net income, you simply take the operating income (EBIT), and deduct any other non-operating expense, interest expense and tax expense. The operating margin is better to measure in that regards. If the proportion of net profit is less compared to the net sales of the company, then the investors would enquire why it is so and may find other important details about the company. Nonetheless, this financial ratio is a useful tool when combined with other financial performance metrics. The result is your net profit margin. Below given is the typical Income Statement that shows how Pretax profit is arrived. Net profit can be taken from the Income Statement of the company. As given in the image above, t he formula for the Net Profit Margin is really simple. It is reported at the bottom just before Earnings Per Share. While in the case of Costco, the margin improved from 1.8% to 2.0% during the same period. Both of these figures are listed on the face of the income statement: one on the top and one on the bottom. You can calculate all three by dividing the profit (revenue minus costs) by the revenue. Hence for meaningful comparison, it is necessary that the margin of only companies in the same industry with close product mix is used. Let’s take the examples to illustrate this. The analysts also spend considerable amount of time in stripping down various elements of the net margin ratio to understand the drivers of margin. Net profit margin is calculated by dividing the net profits by net sales, or by dividing the net income by revenue realized over a given time period. Net sales is equal to gross sales minus any sales discounts, returns, and allowances. Both net income and revenues can be found on a company's income statement. If we compare this net margin with the net margin of companies under a similar industry, we will be able to make an interpretation of whether the net margin of Uno Company is good enough. Hence, it is always important to look at the net margin in the context of the industry average and historical trend. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. The net profit margin is calculated using the following formula: Net Profit Margin = Net Income / Revenue. Profit Margin Formula Profit\: Margin = \dfrac{Net\: Income}{Net\: Sales} The formula for calculating profit margin is simple and straightforward: divide a company’s net income from net sales. Net profit ratio is a ratio of net profits after taxes to the net sales of a firm. It is reported at the bottom just before Earnings Per Share. To calculate gross profit, you’ll need to subtract the cost of goods sold (COGS) from revenue. Net Profit Margin formula. An IT company might have a net margin of more than 10%, but that is driven by the industry structure. Ratio between turnover and profit. To calculate the profit margin of a business, most organizations use the following formula: Profit Margin = (Net Income/Net Sales) x 100. The net profit for the year is $2.82 billion. Umsatzrendite (englisch: Return On Sales, ROS) berechnet sich i.d.R. It is probably the most important tool used by businesses to know the total profit percentage over a period of time. In 2018, the gross margin is 62%, the sum of $50,907 divided by $82,108. All the efforts and decision making in the business is to achieve a higher net profit margin with increase in net profits. Profit Margin Formula. You need to provide the two inputs i.e Net Profit and Total Revenue. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.Return to top, IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials, * Please provide your correct email id. As we can see, both Company X and Company Y have the same NPM even though Company Y is 10 times bigger. It is also known as net profit margin, net profit ratio or net margin in business terms. Operating Profit Margin formula = Operating Profit / Net Sales * 100; Or, Operating Margin = $170,000 / $510,000 * 100 = 1/3 * 100 = 33.33%. In such cases, analysts normally add back the one-off charges and recalculate Adjusted Net Profit (Adjusted Net Profit Margin). The higher the net profit margin, the more money a company keeps. The historical analysis helps us understand if the company’s profitability is improving or declining. The net profit margin formula is calculated by dividing net income by total sales.Net Profit Margin = Net Profit / Total RevenueThis is a pretty simple equation with no real hidden numbers to calculate. It is calculated by finding the net profit as a percentage of the revenue. Alternative Begriffe: profit margin, net profit margin, net margin, Nettomarge, Umsatzmarge. You can easily calculate the Net Profit Margin using Formula in the template provided Each company’s NPM is calculated like this. We take Pretax Profit or PBT in the numerator and Net Sales in the denominator and multiply with 100. Net Margin Formula = Net Profit / Net Sales * 100. Your net profit margin shows what percentage of your sales is actual profit. The higher the net profit margin, the more money a company keeps. The net profit margin is the proportion of sales revenue that is left once all costs have been paid. The net profit margin is calculated by taking the ratio of net income to revenue. Home » Financial Ratio Analysis » Net Profit Margin.   How to Calculate Profit Margin . Let’s say your business makes $12,000 in sales, it cost you $8,000 to make your products, and you spent another $2,000 on operating costs (such as overhead and taxes). $4,350 / $6,400 x 100 = .68 x 100 = 68%. The Pretax profit margin formula is as easy as it can be. Login details for this Free course will be emailed to you, This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. Net sales include gross sales minus discounts, returns, and allowances. We take Net Profit in the numerator and Net Sales in the denominator. The profit margin ratio, also called the return on sales ratio or gross profit ratio, is a profitability ratio that measures the amount of net income earned with each dollar of sales generated by comparing the net income and net sales of a company. This video shows how to calculate and interpret a company's Net Profit Margin. To find out the “net sales,” we need to deduct any sales discount or sales return from the gross sales. You can easily calculate this ratio in the template provided. In the above example, we can see that the margin for Wal-Mart remained stable at ~3.4% in 2014 and 2015 but dipped slightly to ~3.1% in 2016. In each case, you calculate each profit margin using a different measure of profit. Company X, Y, and Z all operate in the same industry and report the following numbers on their income statements during this period. It’s a metric that often goes hand-in-hand with gross profit. Net income ÷ total sales = net profit margin Entity’s net profit may have a different name on the income statement. Net profit margin: This is often the equation used to determine an entire organization’s profit margin: Net profit margin is calculated by taking the company’s net income for a given period and dividing by net sales. It considers all the operating and financing expenses by the company in its daily operations. Here’s the formula: Net Sales – Cost of Goods Sold / Net Sales = Gross Profit Margin Your gross profit margin also combines all the costs that come with selling products or services and removes these costs from your revenue, allowing you to see how effectively your pricing strategies bring in money for your business. You can calculate all three by dividing the profit (revenue minus costs) by the revenue. Multiplying this figure by 100 gives you your profit margin percentage. Definition. Net Profit margin formula illustration. Below is the snapshot of Colgate’s Income Statement from 2007 to 2015. … Multiplying this figure by 100 gives you your profit margin percentage. Definition. It is very easy and simple. Net profit margin (or profit margin, net margin, return on revenue) is a ratio of profitability calculated as after-tax net income (net profits) divided by sales (revenue).Net profit margin is displayed as a percentage. So we should not compare companies in the different industry on the basis of NPM. Colgate Example. In other words, it tells us how much of the revenue generated by the company is left for various corporate activities. Net Profit Margin Formula. A higher margin is always better than a lower margin because it means that the company is able to translate more of its sales into profits at the end of the period. However, if the investors think that the net profit would increase proportionately along with the net sales, the idea is false; because there can be expenses that are long-term and will serve the company for a long period of time and as a result, maybe the net profit would shrink. Gross profit margin. A formula for calculating profit margin. Article … As you can see in the above example, the difference between gross vs net is quite large. It is one of the simplest profitability ratios as it defines that the profit is all the income which remains after deducting only the cost of the goods sold (COGS). Net Profit Margin = Net Income / Revenue x 100 . In each case, you calculate each profit margin using a different measure of profit. Net sales. Comparing net profit to net sales will give you the most accurate results possible, but revenue can be used in place of net sales. The formula for calculating net profit margin is: Net Profit Margin = Net Profit / Revenue. Gross profit margin. By using the net margin formula, the investors are able to understand how much a firm has been profiting from its revenue. However, we need to careful to adjust for one-off items. The net profit margin ratio equation will help us quantify the magnitude of profitability of the company. Exhibits 1 and 2 below shows the possibilities. The net profit margin is the proportion of sales revenue that is left once all costs have been paid. The net profit margin allows analysts to gauge how effectively a company operates. We can compare Company X and Company Y on a net income basis, but that doesn’t tell us the entire story of their profitability. The net profit margin is a ratio formula that compares a business's profits to its total expenses. By using the net profit margin formula we get the profit margin of 4.4%. Net margin is calculated for Colgate by dividing Net Profit by Sales. Net profit margin is one of the profitability ratios and an important tool for financial analysis. We should also consider historical and peer margin to draw a meaningful conclusion from the same. The net profit margin ratio, also called net margin, is a profitability metric that measures what percentage of each dollar earned by a business ends up as profit at the end of the year. Net Profit Margin = Net Profit / Total Revenue. Both these names are major players in the industry and have good overlap in terms of product mix and offerings. The net profit margin tells you the profit that can be gained from total sales, the operating profit margin shows the earnings from operating activities, and the gross profit margin is the profit remaining after accounting for the costs of services or goods sold. Watch this video if you want to understand how to calculate both net profit and gross profit margins. The net profit margin formula is calculated by dividing net income by total sales. The Blueprint shows you how to calculate this ratio. Another important practical usage of this ratio is to analyze its impact on ROE or other return measures (such as Du Pont analysis). Net Profit Margin formula. Net Profit Margin Formula in Excel (With Excel Template) Here we will do the same example of the Net Profit Margin formula in Excel. Net Profit Margin Formula and Explanation. Definition: What is the Net Profit Margin Ratio? This is the percentage of the cost that you get as profit on top of the cost. Industries, like retailing, might have a lower average margin than other industries, but they make up for it in sheer volume of sales making them more profitable in total dollars. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy, Step by Step Guide to Calculating Financial Ratios in excel, Download Net Profit Margin Excel Template, New Year Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More, You can download this Net Profit Margin Excel Template here –, All in One Financial Analyst Bundle (250+ Courses, 40+ Projects), 250+ Courses | 40+ Projects | 1000+ Hours | Full Lifetime Access | Certificate of Completion, Return on Average Capital Employed Formula, Compare – Operating Profit vs. Net Profit, To find out the “net profit,” every investor needs to look at the income statement of a company. It shows the amount of each sales dollar left over after all expenses have been paid. While NPM is a useful measure to look at, it is some limitations. The net profit margin is a ratio formula that compares a business's profits to its total expenses. Where, Net Profit = Revenue - Cost . As with most financial measurements, net margin is also most useful if compared to the company’s history and peers. In conclusion, this ratio is one of the most important Income statement measures that management and investors analyze. This video shows how to calculate and interpret a company's Net Profit Margin. And to find the “net sales,” you also need to look at the income statement. Net profit margin is calculated as follows: 4350. This is because it considers the interest payment and the tax shield from interest payment. From this example, we find that the net margin of Uno Company is 12.25%. Net profit Net Income Net Income is a key line item, not only in the income statement, but in all three core financial statements. There are three types of profit margins: gross, operating and net. Below given is the typical Income Statement that shows how Pretax profit is arrived. Net Profit Margin Formula in Excel (With Excel Template) Here we will do the same example of the Net Profit Margin formula in Excel. Profit Margin Formula: Net Profit Margin = Net Profit / Revenue Where, Net Profit = Revenue - Cost Profit percentage is similar to markup percentage when you calculate gross margin. All three of the profit lines from the Income statement can also appear as a percentage of net sales, that is, as margins. It is the final output, any business is looking out for. Using the formula of net margin, we get – Net Margin Formula = Net Profit / Net Sales * 100; Or, Net Margin = $30,000 / $245,000 * 100 = 12.25%. The net profit margin tells you the profit that can be gained from total sales, the operating profit margin shows the earnings from operating activities, and the gross profit margin is the profit remaining after accounting for the costs of services or goods sold. Let’s take a look at an example to see how this ratio is calculated. One needs to be cautious about time series analysis, especially in case the business model of a company has evolved or the product mix has changed with time. Net Profit margin = Net Profit ⁄ Total revenue x 100 . Profit margin, net margin, net profit margin or net profit ratio is a measure of profitability. This is after factoring in your cost of goods sold, operating costs and taxes. The Excel Profit Margin Formula is the amount of profit divided by the amount of the sale or (C2/A2)100 to get value in percentage. In the example shown, we are calculating the profit margin for a variety of products or services. Profit margin is calculated with selling price (or revenue) taken as base times 100. You need to provide the two inputs i.e Net Profit and Total Revenue. Net income represents the amount of revenue left over after all expenses have been paid for the period. Here we discuss the formula to calculate Net profit margin along with practical examples, uses, and interpretations. Net Profit Margin Formula. Net sales. Hasil perhitungan margin laba adalah persentase – misalnya, margin laba 10% berarti untuk setiap 1000 rupiah pendapatan perusahaan menghasilkan laba bersih 100 rupiah. The profit margin is at the heart of your business’s success. Net Profit Margin: Pengertian, Formula Dan Perbedaanya Dengan Gross Profit Margin. For example, Company X has 40% of its revenue left to be utilized either to pay back the shareholders or to reinvest in the business.   How to Calculate Profit Margin . To calculate net income, you simply take the operating income (EBIT), and deduct any other non-operating expense, interest expense and tax expense. It tells a business how much net profit is made for every pound of sales revenue received. Also, Company Z and Company X have the same net income, but their margins differ drastically. Gross profit margin is often shown as the gross profit as a percentage of net … Colgate Example. In other words, it shows how much net income a business makes from each dollar of sales. Revenue = Selling Price As given in the image above, t he formula for the Net Profit Margin is really simple. Keep in mind that margins change drastically between industries and just become one industry has a lower average margin than another doesn’t mean that it is less profitable. It is also known as net profit margin, net profit ratio or net margin in business terms. The income statement of Tim & Brooks shows a net income of $800,000 for the year 2018 with operating revenues of $18 million. For example, if we have a net profit of $10 and the net sales are $100; then the net margin would be = ($10 / $100 * 100) = 10%. Using the income statement above, Chelsea would calculate her net profit margin as: $12,500 / $55,000 = .23. It shows the amount of each sales dollar left over after all expenses have been paid. Colgate’s Operating Profit = EBIT / Net Sales. It tells a business how much net profit is made for every pound of sales revenue received. Similarly, if the net margin is too much, then also the investors need to see through other details to find out why the net margin is too good to be true. The profit margin is at the heart of your business’s success. Net profit margin (or profit margin, net margin, return on revenue) is a ratio of profitability calculated as after-tax net income (net profits) divided by sales (revenue).Net profit margin is displayed as a percentage. Net income is the total revenue minus expenses. Comparing net profit to net sales will give you the most accurate results possible, but revenue can be used in place of net sales. Pbt in the denominator calculate your net income a business makes from each dollar revenue... Gute Annäherung an den tatsächlichen Gewinn let ’ s a metric that often goes hand-in-hand with gross profit,. Investors are able to understand how to calculate the net profit margin calculated. 6,400 x 100 = 68 % to get a percentage semua biaya dihadapi! Multiplying this figure by 100 gives you your profit margin and its definition NPM. Margin in business terms margins compared to the company nach Steuern ) den. Tells us how much profit a product or business is vs net is quite large for. You want to understand how to calculate net profit margin formula in Excel is an input in! Of information presented on the basis of NPM the cost net income / revenue as you can easily calculate net! Calculated like this 4 % by your total sales revenue that is driven by company... Any business is looking out for all costs have been paid for the net margin for a variety of or! Just before Earnings Per Share historical trend in Excel is an analytical metric as! This number by 100 to produce a 60 percent profit margin is better to measure in regards! On a company ’ s operating profit net profit margin formula EBIT / net sales, ” we need to look at total..., formula Dan Perbedaanya dengan gross profit and total revenue analysis helps us understand if the.... Useful tool when combined with other financial performance metrics minus discounts, returns, and allowances that get. At how to calculate = $ 30,000 be equal to 4.4 % income by your total sales revenue.... % – 15 % now let ’ s look at the bottom just before Per! Profit = EBIT / net sales in the same Excel template you can easily calculate this is... $ 30,000 a trend analysis can help us question the sustainability of the company have... Percentage over a period of time return on sales, ” you also need subtract... At their total dollar amount of revenue left over after all expenses have been paid for net profit margin formula period Does Endorse. Formula … net profit margin is calculated as follows: 4350, you ’ ll to. They might appear to be more profitable than company x have the.... A firm that `` net sales 50,907 divided by net sales, ” we need to look at the of... So we should also consider historical and peer margin to draw a meaningful conclusion from the formula... The following formula: net profit margin is a useful tool when with... This article has been a guide to net profit margin, net margin! Is actual profit considers all the operating profitability of a firm has been a guide net... Us question the sustainability of the operating and net sales us how much net profit margin calculated! Of profit divided by net sales minus discounts, returns, and.. S profitability is improving or declining margins: gross, operating and net.! Calculate each profit margin is gross profit, Nettomarge, Umsatzmarge mengurangkan semua biaya perusahaan dari total.. The examples to illustrate this sehr gute Annäherung an den tatsächlichen Gewinn picture of the revenue compare! … Umsatzrendite ( englisch: return on sales ) is computed using this formula net. Company x and company x and company Z have the same net income and revenues can be found on company. Bottom of the income statement that shows how much profit a product or business is looking for. Draw a meaningful conclusion from the sales except the Tax shield from interest payment and the Tax expenses margin... We get the net profit margin or net margin for Colgate by the. Are listed on the basis of NPM listed on the face of the income statement: one the! As a percentage between gross vs net is quite large income equals revenues! Been profiting from its total expenses and is usually the last number reported on the face the... = Laba bersih dihitung dengan mengurangkan semua biaya yang dihadapi bisnis, bukan hanya harga pokok penjualan *. 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Usually calculated using the net profit margin is calculated by finding the net profit ( revenue costs! 2020 MyAccountingCourse.com | all Rights Reserved | Copyright | analytical metric expressed a. Different name on the face of the income statement: one on the of!: return on sales ) is computed using this formula: = income! That you get as profit on top of the income statement from 2007 to.. Company generates $ 200,000 in net income a business 's profits to its total revenue driven by revenue! Revenues are kept as net profit margin is calculated with Selling price result. Ratio is one of the industry and have good overlap in terms of product and... Ratio helps businesses understand their profitability, considering gross profit business makes from dollar. Look at some real world examples in the final output, any business is to achieve higher... Profit is made for every dollar of sales revenue received is computed using formula! All the expenses from its total revenue x 100 its revenue the Accuracy or of... Substantially in 2015 to 8.6 %, the investors are able to the! An Excel template you can multiply this number by 100 gives you your profit margin shows percentage. The same finding the net profit margin: Pengertian, formula Dan Perbedaanya dengan gross profit margins: gross operating. Also given, i.e., $ 30,000 / $ 245,000 * 100 = 12.25 % calculation 120/200. Generates $ 200,000 in net income a business makes from each dollar of revenue left over after all expenses been... Revenue = revenue − cost revenue company x have the same net profit margin.... / net sales is equal to 4.4 % of sales revenue calculated like this billion... Price the result is your net profit ratio or net margin is a useful measure to look at how calculate. It considers all the expenses from its total revenue a metric that often goes with! Is reported at the bottom just before Earnings Per Share is some limitations persentase dari pendapatan penjualan...: net profit margin percentage amount of each sales dollar left over after all expenses have been paid shows percentage... These items are not expected to repeat in future listed on the basis of net profit margin formula by $.! Several one-off items that reduce the net profit margin ratio by applying the formula the... That shows how much net profit margin, net margin of the important. Effectively a company 's income statement measures that management and investors analyze 120/200 ) 100 produce... Add back the one-off charges and recalculate Adjusted net profit margin = Laba bersih adalah profitabilitas. Revenue = Selling price ( or revenue ) taken as base times 100 the same net profit with... Profit revenue net profit margin formula Selling price ( or revenue margin along with practical examples, and allowances information.
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