This calculator provides the user with the three most common profitability ratios. Using information from the income statement such as revenues and expenses, this calculator provides the gross, operating, and net profit margins.
The variables used in our online calculator are defined in detail below, including how to interpret the results.
This calculator requires a total of eight inputs, all of which are derived from the company's income statement.
Revenue is a financial term used to account for the money that a company receives from activities that include sales of products and / or services to customers. In this example, include all of the income derived from the company's core business operations each year.
Also known as cost of sales, the cost of goods sold, or COGS, is the direct expense a company incurs when making a product, or supplying a service, such as raw materials and labor.
Also known as SG&A, the selling, general, and administrative expense includes the costs associated with selling a product or service, and the general expenses associated with running a business. Examples include office supplies, salespersons salaries, advertising expenses, back office labor such as accounting, and other labor not directly associated with the manufacture of a product, or supplying a service.
The systematic method of allocating the cost of a tangible asset to those time periods that benefit from the use of the asset is known as depreciation. Amortization is the expiration of intangible assets such as patents or goodwill.
Operating Expenses are the sum of all the expenses associated with the ongoing operations of the company. In this example, other operating expense would exclude the COGS and SG&A costs.
This is the sum of all other income derived from sources that are not related to the company's core operating activities.
A company's interest expense is the payments that have come due on amounts borrowed by the company.
This includes the federal and state income tax obligations payable on business income.
Also known as the gross profit rate, this ratio provides insights into how efficient a company is at manufacturing a product or supplying a service. When comparing two companies in similar industries, the company with the higher gross profit margin will be more efficient in manufacturing the product or providing their service.
This ratio includes the cost of goods sold, selling, general and administrative expenses and depreciation. It's the income associated with ongoing operations of the company's core business. When comparing two companies in similar industries, the company with the higher operating margin will be more efficient in manufacturing the product or providing their service.
Also known as net margin, in addition to the cost of goods sold, selling general and administrative expense and depreciation; this metric also includes non-operating income, interest expense and income taxes. The advantage of a financial ratio like profit margin has to offer investors is its all-encompassing reach. It also includes both expenses and income sources that are not part of the company's core business. As such it's relegated to a second tier measure of profitability.
Profitability Ratios Calculator - Copyright © 2012 - 2015 Money-Zine.com (Last Reviewed on January 29, 2015)
Disclaimer: These online calculators are made available and meant to be used as a screening tool for the investor. The accuracy of these calculations is not guaranteed nor is its applicability to your individual circumstances. You should always obtain personal advice from qualified professionals.