Calculation Examples of Profitability Ratios Analysis. 1 #1 – Gross profit. = Net sales – Cost of goods sold. So form the above calculation, gross profit will be: 2 #2 – Net profit = $31,000. 3 #3 – EBITDA. = Net profit + Interest expense + Tax + Depreciation expense. So from the above calculation, EBITDA will be:
Net Profit Margin: When doing a simple profitability ratio analysis, the net profit margin is the most often margin ratio used. The net profit margin shows how much of each sales dollar shows up as net income after all expenses are paid.
These ratios are normally included whether assessing and analyzing profitability ratios: Return on equity. In performance management, performance assessment, and/or investments analysis, we normally use some of theses ratio along with others ratios and non-financial indicators to measure and assess the performance, financial position of the entity.
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.