The Net Profit Margin Formula The net profit margin formula may appear daunting but is in fact very straightforward to use. (R-COGS-E-I-T) x WHERE: R = revenue COGS = the cost of goods sold E = operating and other expenses I= interest T = taxes Once we have plugged some numbers into this formula, the picture becomes much clearer. Also note that multiplying the entire result by one hundred will give us a decimal value that can (and often is) expressed as a percentage of total revenue. For our example, let's use the values from the table below. Revenue COGS ABC Corp Operating and other expenses Interest Taxes Click or tap to enlarge x 100 Cleaning that up a little bit gives us the following result: With this information plugged into the formula, we can calculate the net profit margin for our example ABC Corp, as shown below. 23,900 72,300 $72,300 $23,600 $21,000 ( 72,300 – 23,600 - 21,000 – 900 – 29,000): 72,300 -) $900 $2,900 x 100 = 33.1% x 100 As we can see, the net profit margin for ABC Corp is 33.1%. This means that of every sales dollar-or dollar of revenue-ABC Corp keeps 33.1 cents after all costs have been accounted for.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter8: Cost Analysis
Section: Chapter Questions
Problem 9E
icon
Related questions
Question

explain the photo regarding the net profit margin and give insights about it. use your own words

 

The Net Profit Margin Formula
The net profit margin formula may appear daunting but is in fact very straightforward to use.
352- E-1-T) X
R
R-COGS-E-I-T
WHERE:
R = revenue
COGS = the cost of goods sold
E = operating and other expenses
I = interest
T = taxes
Once we have plugged some numbers into this formula, the picture becomes much clearer.
Also note that multiplying the entire result by one hundred will give us a decimal value that can (and often is) expressed as
a percentage of total revenue.
For our example, let's use the values from the table below.
ABC Corp
Revenue
COGS
Operating and other expenses
Interest
Taxes
Click or tap to enlarge
x 100
Cleaning that up a little bit gives us the following result:
With this information plugged into the formula, we can calculate the net profit margin for our example ABC Corp, as shown
below.
( 72,300 - 23,600 - 21,000 - 900 – 29,000): x 100
23,900
72,300
-)
$72,300
$23,600
$21,000
$900
$2,900
x 100 = 33.1%
As we can see, the net profit margin for ABC Corp is 33.1%. This means that of every sales dollar-or dollar of revenue-ABC
Corp keeps 33.1 cents after all costs have been accounted for.
Transcribed Image Text:The Net Profit Margin Formula The net profit margin formula may appear daunting but is in fact very straightforward to use. 352- E-1-T) X R R-COGS-E-I-T WHERE: R = revenue COGS = the cost of goods sold E = operating and other expenses I = interest T = taxes Once we have plugged some numbers into this formula, the picture becomes much clearer. Also note that multiplying the entire result by one hundred will give us a decimal value that can (and often is) expressed as a percentage of total revenue. For our example, let's use the values from the table below. ABC Corp Revenue COGS Operating and other expenses Interest Taxes Click or tap to enlarge x 100 Cleaning that up a little bit gives us the following result: With this information plugged into the formula, we can calculate the net profit margin for our example ABC Corp, as shown below. ( 72,300 - 23,600 - 21,000 - 900 – 29,000): x 100 23,900 72,300 -) $72,300 $23,600 $21,000 $900 $2,900 x 100 = 33.1% As we can see, the net profit margin for ABC Corp is 33.1%. This means that of every sales dollar-or dollar of revenue-ABC Corp keeps 33.1 cents after all costs have been accounted for.
Expert Solution
steps

Step by step

Solved in 2 steps with 2 images

Blurred answer
Knowledge Booster
Learner's Curve
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Managerial Economics: Applications, Strategies an…
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
Economics (MindTap Course List)
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning
Microeconomics
Microeconomics
Economics
ISBN:
9781337617406
Author:
Roger A. Arnold
Publisher:
Cengage Learning