The Net Profit Margin Formula The net profit margin formula may appear daunting but is in fact very straightforward to use. (R-COGS-E-I-T) x WHERE: R = revenue COGS = the cost of goods sold E = operating and other expenses I= interest T = taxes Once we have plugged some numbers into this formula, the picture becomes much clearer. Also note that multiplying the entire result by one hundred will give us a decimal value that can (and often is) expressed as a percentage of total revenue. For our example, let's use the values from the table below. Revenue COGS ABC Corp Operating and other expenses Interest Taxes Click or tap to enlarge x 100 Cleaning that up a little bit gives us the following result: With this information plugged into the formula, we can calculate the net profit margin for our example ABC Corp, as shown below. 23,900 72,300 $72,300 $23,600 $21,000 ( 72,300 – 23,600 - 21,000 – 900 – 29,000): 72,300 -) $900 $2,900 x 100 = 33.1% x 100 As we can see, the net profit margin for ABC Corp is 33.1%. This means that of every sales dollar-or dollar of revenue-ABC Corp keeps 33.1 cents after all costs have been accounted for.

The Net Profit Margin Formula The net profit margin formula may appear daunting but is in fact very straightforward to use. (R-COGS-E-I-T) x WHERE: R = revenue COGS = the cost of goods sold E = operating and other expenses I= interest T = taxes Once we have plugged some numbers into this formula, the picture becomes much clearer. Also note that multiplying the entire result by one hundred will give us a decimal value that can (and often is) expressed as a percentage of total revenue. For our example, let's use the values from the table below. Revenue COGS ABC Corp Operating and other expenses Interest Taxes Click or tap to enlarge x 100 Cleaning that up a little bit gives us the following result: With this information plugged into the formula, we can calculate the net profit margin for our example ABC Corp, as shown below. 23,900 72,300 $72,300 $23,600 $21,000 ( 72,300 – 23,600 - 21,000 – 900 – 29,000): 72,300 -) $900 $2,900 x 100 = 33.1% x 100 As we can see, the net profit margin for ABC Corp is 33.1%. This means that of every sales dollar-or dollar of revenue-ABC Corp keeps 33.1 cents after all costs have been accounted for.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 9E

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