How to Calculate a Percent Margin

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The gross percent margin for a company is an indicator of how efficient a company is in generating profit. The percentage represents the amount per dollar of revenue that the company keeps as profit after the cost of production and sales have been included. As an investor, the percent margin can help you compare companies of unequal size. For example, two companies may have $10 million in revenues, but if one has $8 million in costs and the only has $6 million, there will be a significant difference in the percent margin. To calculate the gross percent margin, you need to know the total revenue and the cost of the goods sold.

Look up the gross revenues and cost of goods sold for the company by looking in the company's annual report or by contacting the company's investor relations group.

Subtract the cost of goods sold from the total revenue. For example, if a company had $20 million in revenue but the costs of goods sold was $15 million, the result would be $5 million.

Divide the result from Step 3 by the total revenue. Continuing the example, you would divide $5 million by $20 million to get 0.25.

Multiply the result from Step 3 by 100 to convert it to a percentage. Finalizing the example, you would multiply 0.25 by 100 to find the percent margin for the company equals 25 percent.

Tips & Warnings

  • "Good" percent margins vary from industry to industry so it can be hard to compare the percent margins from companies working in two different sectors.

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