## 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 + %**.