Profit Margin Formula

Profit margin formula is used to calculate how much profitable a product or business is. It is probably the most important margin used by businesses to know the total profit percentage over a period of time. It is also known as net profit margin, net profit ration or net margin in business terms.

When net profit is divided by sales, the product we get is the profit margin. Usually used by small companies for comparing similar industries. It is denoted in percentage. The more profitable the better.

Profit Margin Formula

\(\large Profit\;Margin=\frac{Total\;Income}{Net\;Sales}\)

Gross Profit Margin Formula

The gross profit margin formula is derived by dividing the difference between revenue and cost of goods sold by the revenue. 

∴ \(\large Gross\;Profit\;Margin=\frac{Gross\;Profit}{Net\;Sales}\)

Solved Examples Using Profit Margin Formula

Question 1: Find the profit margin when you buy a pen for Rs. 100 and sell it for Rs. 150.

Solution:

Given,

Net Sale = Rs.150

Net Profit = Rs. 150 – Rs. 100 = Rs. 150

Profit Margin = (Net Sale ⁄ Net Profit)

Profit Margin = (50 ⁄ 150)

Profit Margin = 0.33

Hence, the Percentage of Profit Margin = 33.33%


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