Understanding the profit margin
Profit margin is a ratio between a company’s revenue and income. Let me explain it in the following example.
Joe has a company that generates $1,200,000 in revenue. The expenses of the company are $900,000. So the net profit is $300,000.
net profit = revenue – expenses
net profit = $1,200,000 – $900,000 = $300,000
Now, we can calculate the profit margin.
profit margin = net profit / revenue
profit margin = $300,000 / $1,200,000 = 25%
Profit margin formula in Excel
Let’s take a look at how to calculate this formula in Excel. This formula is very simple. The only thing you need to do here is to format the decimal value of 0.25 to a percentage.
You can do it in Home >> Number >> Percent Style.
Alternatively, you can use Ctrl + Shift + %.