Below is the formula to calculate this Profitability Ratio. The net profit, which is also called profit after tax ( PAT ), is calculated by deducting all the direct and indirect expenses from the sales revenue. Then, the net profit margin is calculated by dividing the net profit by the sales revenue and is expressed in terms of percentage.
Profit Margin Ratios: These ratios compare various profits of the business (gross profit, operating profit, net profit, etc.) with its sales. Gross Profit Margin = (Gross Profit / Sales) * 100 Gross Profit = Sales – COGS Operating Profit Margin = (Operating Profit / Sales) * 100
Gross Profit Ratio establishes the relationship between gross profit and Revenue from Operations, i.e. Net Sales of an enterprise. Thus, Gross Profit Ratio = (Gross Profit/Revenue from Operations) x 100 Revenue from operations means revenue earned by the enterprise from its operating activities.