Gross margin is equal to $500k of gross profit divided by $700k of revenue, which equals 71.4%. Calculate the gross and net profit margins for XYZ Company in 2018.īased on the above income statement figures, the answers are: The revenue from selling shirts in 2018 is $700k, the cost of goods sold (the direct cost of producing the shirts) is $200k, and all other operating expenses (such as selling, general, administrative (SG&A), interest and taxes) are $400k. XYZ Company is in the online retail business and sells custom printed t-shirts. Let’s consider an example and use the formulas displayed above. The net margin, by contrast, is only 14.8%, the sum of $12,124 of net income divided by $82,108 in revenue. Net Profit Margin = Net Income / Revenue x 100Īs you can see in the above example, the difference between gross vs net is quite large. Operating Profit Margin = Operating Profit / Revenue x 100 Gross Profit Margin = Gross Profit / Revenue x 100 Below is a breakdown of each profit margin formula. When assessing the profitability of a company, there are three primary margin ratios to consider: gross, operating, and net. This guide will cover formulas and examples, and even provide an Excel template you can use to calculate the numbers on your own. The three main profit margin metrics are gross profit margin (total revenue minus cost of goods sold (COGS) ), operating profit margin (revenue minus COGS and operating expenses), and net profit margin (revenue minus all expenses, including interest and taxes). In accounting and finance, a profit margin is a measure of a company’s earnings (or profits) relative to its revenue.
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