Formulas
to calculate profit margin ratios:
Net
Profit Margin
Ratio (After Tax Margin Ratio) = net profit after tax / sales.
Pretax
Margin Ratio = net profit before taxes / sales.
Operating
Profit Margin (Operating Margin) = net income before
interest and taxes / sales.
Profit
Margin Ratios definitions and explanations:
These three profit margin ratios state how much
profit the company makes for every dollar of
sales.
The net profit margin ratio is the most commonly
used profit margin ratio.
A low profit margin ratio indicates that low amount
of earnings, required to pay fixed costs and profits,
are generated from revenues.
A low profit margin ratio indicates
that the business is unable to control its production
costs.
The profit margin ratio provides clues to the
company's pricing, cost structure and production
efficiency.
The profit margin ratio is a good ratio to benchmark
against competitors.
The net profit margin ratio is included in
the financial statement ratio analysis spreadsheets
highlighted in the left column, which provide
formulas, definitions, calculation, charts and
explanations of each ratio.
The net profit margin ratio and operating
profit margin ratio are listed in our profitability
ratios.
Spreadsheets to
calculate ratios (includes formulas, definitions,
explanations and charts):
See list
of ratios , or the financial statement ratio
analysis spreadsheets which are not highlighted in the
left column, to see which other ratios our spreadsheets
calculate, define and explain.
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explanations for each ratio.
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