How to Calculate Negative Profit Margin

A profitable business must earn more revenue than it spends on all of its expenses, like the costs of producing goods, taxes, interest and rent. Net profit margin or simply profit margin is a measure of a company's profitability that expresses the proportion of revenue that remains after a business covers its costs. A company that is losing money over time has a negative profit margin, but the calculation used to determine profit margin is the same regardless of whether the company is making money or losing money.

Instructions

1. Record the total revenue that the business earned during a certain time period.

2. Subtract the total costs that the business incurred during the same time period from the value recorded in Step 1. For businesses with negative profit, the total costs will exceed revenue, so the result of the subtraction will be a negative number. For instance, if total revenue was $100 and total costs were $110, you would subtract $110 from $100 to arrive at -$10.

3. Divide the result from Step 2 by the amount of total revenue recorded in Step 1. In the previous example, you would divide -$10 by $100 to arrive at -0.1.

4. Move the decimal point over two places to the right (i.e. multiply by 100) to express the profit margin as a percentage rather than a decimal. In the previous example, the net profit margin would be -10 percent.

Tips & Warnings

• A negative profit during a certain period of time means a company has lost money during that period.

• A company that has a negative profit margin for a long period of time may accumulate high levels of debt and eventually be forced to declare bankruptcy.

References

• The Free Dictionary: Net Profit Margin
• Microsoft Office; Three Keys to Profitability: Cost of Goods Sold, Markup and margin; Stan Snyder