Interactive Profit Margin Calculator

Calculate profit margin ratio with step-by-step explanations and visual gauge. Professional tool for financial analysis and business assessment.

Financial Data
Net Profit ($)
After all expenses, taxes, and costs (e.g., $20,000)
Total Revenue ($)
Total income from business activities (e.g., $100,000)
Decimal Precision (Optional)
Number of decimal places for result (default: 2)
Please enter valid positive numbers for net profit and total revenue.
0% 5% Low 15% Good 50%+ Excellent

Profit Margin Ratio Formula

Understanding the calculation and profitability interpretation

Profit Margin Ratio Definition

The profit margin ratio is calculated by dividing the net profit by the total revenue and multiplying by 100 to get a percentage:

Profit Margin = (Net Profit ÷ Total Revenue) × 100%

Key Components

  • Net Profit: The amount left after deducting all expenses, taxes, and costs from total revenue
  • Total Revenue: The total income generated from business activities before any deductions

Interpretation Guide

  • Profit Margin > 15%: Good – Strong profitability and efficient cost management
  • Profit Margin 5%–15%: Moderate – Typical for many industries, room for improvement
  • Profit Margin < 5%: Low – Low profitability or high costs relative to revenue

How to Use the Calculator

Simple steps for accurate profit margin analysis

1

Enter Net Profit

Input your company’s net profit from financial statements

2

Enter Total Revenue

Input total revenue or sales from business activities

3

Get Analysis

View profit margin percentage with industry comparison and insights

Frequently Asked Questions

The profit margin ratio is a financial metric that measures how much of each dollar of revenue translates into profit. It’s calculated as (Net Profit ÷ Total Revenue) × 100% and indicates a company’s ability to control costs and generate earnings from sales.

To calculate profit margin: Determine net profit (after all expenses), obtain total revenue, divide net profit by total revenue, and multiply by 100. Example: ($20,000 ÷ $100,000) × 100 = 20% profit margin.

A good profit margin varies by industry: above 15% is generally strong, 5-15% is moderate and typical for many industries, below 5% may indicate low profitability or high costs. Always compare to industry benchmarks.

Profit margin is crucial because it measures financial health and efficiency, helps compare performance across companies and industries, indicates pricing power and cost control, affects investment decisions and valuation, and guides strategic planning for growth.

Businesses can improve profit margin by increasing prices strategically, reducing operating costs and expenses, improving operational efficiency, focusing on higher-margin products/services, negotiating better supplier terms, and optimizing resource allocation.

Gross margin measures profitability after cost of goods sold (COGS) only, while profit margin (net) includes all expenses like operating costs, taxes, and interest. Gross margin focuses on production efficiency, while net margin shows overall profitability.

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