How to Calculate Profit Margin From a Financial Statement
Profit margin is one of a series of financial ratios that reflects the overall health of a company's finances. Profit margin is one of the most important numbers that can be derived from a company's financial statements, since it reflects the profitability of a company. There are two types of profit margins: the gross margin and the net margin. The gross margin shows a company's profitability before certain expenses, while the net margin shows a company's "bottom-line" profitability, or the amount that is available to retain as net earnings.
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Instructions
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Locate the company's total sales figure. This number, also known as gross sales, reflects the total amount of revenue that the company generated from selling its product.
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Find the cost of goods sold. "Cost of goods sold" is an accounting term that refers to the total price a company paid to acquire the products that it sold.
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Subtract the cost of goods sold from the total sales figure. The resulting number will be the company's gross profit.
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Divide the gross profit by the amount of total sales. This will give you the gross profit percentage, also known as the gross profit margin. Since the gross profit will always be less than or equal to the total sales figure, the gross profit margin will always be less than or equal to one. Typically, the gross profit margin is quoted as a percentage rather than a decimal. For example, if your company's gross profit margin is .52, it will usually be referred to as a "52 percent gross profit margin."
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Subtract all operating expenses from the gross profit figure. This will give you the company's net profit.
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Divide the net profit by the total sales. The resulting figure will be the company's net profit margin. As with gross profit margin, this number will always be a decimal and will usually be referred to as a percentage, such as a "net profit margin of 42 percent" rather than a .42 net profit margin.
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