Calculate 3 Types of Profit Margin in Excel
The Gross Profit Margin, Operating Profit Margin, and Net Profit Margin are all essential profitability indicators. They are frequently used to contrast the performance of the same company over time or between different companies. In this article, I will show you the processes to calculate the Gross Profit Margin, Operating Profit Margin, and Net Profit Margin in Excel.
Introduction to the Dataset
Before starting the procedure, let’s introduce you to our dataset for this article. Here is a list of the financial statements of a company (column A) and the mention of their corresponding cost (column B).
Below the data table, I will calculate the profit margins in a separate row.
1. Gross Profit Margin
What is Gross Profit Margin?
Gross Profit Margin is an economic ratio that calculates the percentage of profit a company makes from its total earnings. The Gross Profit Margin is helpful to measure a company’s financial health.
To calculate the Gross Profit Margin, subtract the total price of raw materials of a company from the total revenue. Then simply fractionate the result by the total revenue.
Calculate Gross Profit Margin in Excel
Now before showing you the method, I should mention that there is no built-in function for calculating the Gross Profit Margin in Excel. That’s why to calculate the Gross Profit Margin, we are going to follow the standard equation of Gross Profit Margin.
Syntax
= (Total Revenue - Expense on Raw Materials)/ Total RevenueFormula
= (B2-B3)/B2Usage Guide
Step_1: Select an empty cell.
To enter the formula, I’ll use cell B5.
Step_2: Now type the formula in cell B5.
Step_3: Press ENTER to insert the formula.
Apply Percentage
Step_4: Select cell B5.
Step_5: Click on the Home tab.
Step_6: In the Number group, hit on the % button.
Final Result >
The Gross Profit Margin of our dataset is 43%.
Formula Explanation
- B2 indicates the value of Total Revenue.
- B3 denotes the total Expenses on Raw Materials.
2. Operating Profit Margin
What is Operating Profit Margin?
Operating Profit Margin is a measure of profitability that measures a company’s ability to generate profits from its core operations.
To calculate the Operating Profit Margin, first, deduct the total cost of operating costs and raw elements from the total revenue. Then fractionate the result of subtraction by the total revenue. Finally, express the result in percentage.
Calculate Operating Profit Margin in Excel
To calculate the Operating Profit Margin, only the cost of operating costs and raw elements are taken into consideration and they are subtracted from the total revenue.
Syntax
= (Total Revenue - Expense on Raw Materials - Operating Cost)/ Total RevenueFormula
= (B2-B3-B4)/B2Usage Guide
Step_1: Select an empty cell.
I will be using cell B6 to insert the formula.
Step_2: Write the formula in cell B6.
Step_3: Press ENTER.
Step_4: Click on the % icon in the Number group of the Home tab.
Final Result >
Normally, Operating Profit Margin is represented in percentage form. So, it is best to use the percentage (%) here.
Formula Explanation
- B2 indicates the value of Total Revenue.
- B3 is the Expenses on Raw Materials.
- B4 represents the Operating Cost.
3. Net Profit Margin
What is Net Profit Margin?
Net Profit Margin expresses the amount of net income or profit generated as a percentage of revenue. The Net Profit Margin calculates the percentage of revenue that remains after all operating and non-operating expenses like debts, interests, and taxes, etc. have been paid.
Calculate Net Profit Margin in Excel
The Net Profit Margin considers all types of expenses for its calculation.
Syntax
= (Total Revenue - Expenses on Raw Materials - Operating Cost - Other Expenses)/Total RevenueFormula
=(B2-B3-B4-B5-B6-B7)/B2Usage Guide
Step_1: Type the formula in an empty cell.
I’ve inserted the formula in cell B9.
Step_2: Write the formula in cell B6.
Step_3: Press ENTER.
Step_4: Now hit the % icon under the Number group of the Home tab.
Final Result >
So, you can see all types of expenses are subtracted to find the Net Profit Margin. Here I have to mention that, the additional expenses can vary in other cases.
Formula Explanation
- B2 is the inflow of money. It is the total amount of revenue.
- B3, B4, B5, B6, and B7 are different sorts of outflow of revenue.
Conclusion
I hope now you have a clear concept of the 3 types of profit margin calculation in Excel. I hope this article will help you to solve any sort of situation regarding profit margin. Please visit our Blog page for more Excel-related articles like this one. Feel free to share your thoughts about our articles in the comment section below. Thank you!
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