How to calculate gross profit margin, revenue margin, net profit margin?
According to the formula for the calculations of the gross profit margin, revenue margin, net profit margin, it requires two values.First is ths cost and 2nd is the revenue.
Example #1
Company A and B both working in the same industry. Which company has a higher net profit margin?
Company a Income Statement
| Revenue | $100 |
| Cost of Goods Sold | $20 |
| Gross Profit | $80 |
| Operating Expenses | $20 |
| Operating Profit | $60 |
| Interest Expenses | $5 |
| Earnings Before Texas | $55 |
| Tax Expense | $25 |
| Net Income | $30 |
Company b Income Statement
| Revenue | $225 |
| Cost of Goods Sold | $35 |
| Gross Profit | $190 |
| Operating Expenses | $40 |
| Operating Profit | $150 |
| Interest Expenses | $10 |
| Earnings Before Texas | $140 |
| Tax Expense | $60 |
| Net Income | $80 |
Net Profit Margin Formula :
$$\text{Net Profit Margin}\;= \;\frac{\text{Net Profit}}{\text{Revenue}}$$
Company A
$$\text{Net Profit Margin}\;=\;\frac{\text{Net Profit}}{\text{Revenue}}\;=\;\frac{80}{225}\;=\;35.56%$$
Company B
$$\text{Net Profit Margin}\;=\;\frac{\text{Net Profit}}{\text{Revenue}}\;=\;\frac{30}{100}\;=\;30%$$
Company A has a higher net profit margin.
Example #2
Company A and company B have net profit margins of 12% and 15% respectively. Both companies earned $150 in revenue. How much net profit did each company make?
Net Profit Margin Formula :
$$\text{Net Profit Margin}\;= \;\frac{\text{Net Profit}}{\text{Revenue}}$$
Company A:
$$\text{Net Profit}\;=\;\frac{Net Margin}\;*\;\text{Revenue}\;=\;12%\;*\;$150\;=\;18$$
Company B:
$$\text{Net Profit}\;=\;\frac{Net Margin}\;*\;\text{Revenue}\;=\;15%\;*\;$150\;=\;22.50$$
