Profit Margin Calculator
**This calculator is basic and does not accept commas. When entering values, just enter the numbers.
Profit Margin Formula
Profit Margin Ratio =
Net Income / Net Sales
Net Income / Net Sales
How to Calculate Profit Margin
Per the profit margin formula, you need to know how to determine what your net income and net sales are. While both are listed on an income statement, note that net income is calculated by subtracting expenses from gross income (Net Income = Gross Income - Expenses). If you're not familiar with what gross income is, it is essentially a business' sales revenue. Net sales is the sales revenue a business earns from sales less returns and allowances (Net Sales = Sales Revenue - Returns - Allowances).
What is Profit Margin?
Profit Margin (also referred to as profit margin ratio, or net profit margin) is a measure of profitability that reflects how much net income is earned per every dollar in net sales. This is a measure of profitability to evaluate how a business is doing financially. It is important to note that net income and net sales can be found on the Income Statement. Additional profitability measures in accounting are: Rate of Return on Assets and Asset Turnover Ratio. Additionally, profit margin (or net profit margin) is net income is impacted by efforts the company makes to reduce expenses, while net sales is impacted by efforts to increase revenue. Both efforts, either reducing expenses or increasing revenue, will result in an increase to the profit margin (which is a good thing). In short, the net profit margin tells an investor whether or not a company is doing well in converting sales into profits. A business with a high (comparable to its' industry average) profit margin are in position to confront product issues or economic downturns. There is a lot of meaning in the numbers that are produced from the profit margin formula.