Profit Margin Formula

Profit Margin Formula

The Profit Margin in a sale is calculated using the Profit Margin Formula. The revenue earned minus the costs is divided by the revenue generated to determine the profit margin. It is the ratio of net sales less the cost of products sold, cost of raw materials, cost of labour, and other expenses. The Profit Margin Formula is calculated as the ratio of the difference between revenue and cost multiplied by 100. A percentage is used to represent the profit margin. Students can take a look at the Profit Margin Formula and cases that have been solved on the Extramarks website and mobile application.

The Profit Margin Formula solutions by Extramarks experts are very descriptive, detailed and comprehensive that make sure to cater to all student needs.

The Profit Margin Formula has been compiled in collaboration with some of the top experts at Extramarks thus eliminating any question or chance of inaccuracy in solutions. The formulas and sums in the Profit Margin Formula notes have been explained in a detailed step-by-step solution, while also pertaining to the CBSE norms and guidelines. 

What is Profit Margin Formula?

The Gross Profit Margin Formula and the net Profit Margin Formula, which are both discussed below the Profit Margin Formula, are further separated into two formulae. The Profit Margin Formula is as follows: 

The formula for Calculating Profit Margin: 

(Revenue – Cost of Goods Sold)/Revenue) x 100 

Net profit margin and gross profit margin are the two primary profit margins. Below is a list of the formulas for both profit margins: 

(Gross Profit/Revenue) 100 = Gross Profit Margin 

(Net Profit/Revenue) 100 = Net Profit Margin

 The solutions and notes based on the Profit Margin Formula include solutions to exercises given in the NCERT book. Examples have been provided wherever needed in Extramarks’ Profit Margin Formula notes. With the help of these solutions based on the Profit Margin Formula, students will be able to clarify any doubt that prevails in their version of the concept. These notes on the Profit Margin Formula are extremely helpful for board examinations. 

Examples Using Profit Margin Formula

Example 1: A company’s sales are $700,000 and its gross profit is $500,000. Discover the company’s gross profit margin. 

Solution: 

Gross profit = Rs. 500,000

Net sales = Rs. 700,000

Gross Profit Margin = (Gross Profit/Revenue) × 100

= (Rs. 500,000/Rs. 700,000) × 100

= 71.43%

The company’s gross profit margin is 71.43%.

Figure 2: The company’s income statement is shown below: 

Revenue = Rs 7,20,000

Gross Profit = Rs 3,00,000

Net Income = Rs 50,000

Using the profit margin formula, get the company’s Net Profit Margin and Gross Profit Margin. 

Solution: 

Revenue = 7,20,000

Gross Profit = 3,00,000

Net Income = 50,000

To Find: Net Profit Margin and Gross Profit Margin

Using Profit Margin Formula:

Gross Profit Margin = (Gross Profit/Revenue) × 100 = 300000/720000 × 100 = 41.67%

Net Profit Margin = Net Profit/ Revenue × 100

= 50000/ 720000 × 100 = 6.94%

The company’s gross profit margin is 41.67%, while its net profit margin is 6.94%.

Example 3: Sam spent $17,000 on 1500 items. He received $21000 for the items. Using the profit margin formula, get the articles’ gross profit margin. 

Solution: 

Given: Income = 21,000 

1700 is the cost of the products sold. 

To find: Using the profit margin formula, calculate the gross profit margin. 

(Gross Profit/Revenue)/100 = (21000-17000)/21000/100 = 4000/21000/100 = 19.05% 

The articles’ gross profit margin is 19.05%.