Profit Margin Calculator
Gross, operating and net margin from one set of figures, side by side, so you can see which layer of cost is taking the money. Includes the markup conversion.
Work it out
Opens on a worked example. Change any line and every figure follows. Cost of goods sold and operating expenses go in before depreciation and amortisation.
Runs entirely in your browser. Nothing you enter is sent to us or stored.
Gross margin
61.0%
- Operating margin
- 4.0%
- Net margin
- 2.5%
Markup is not margin
is a margin of 33.3%
needs a markup of 66.7%
How it is worked out
| Ratio | Formula |
|---|---|
| Gross margin | (Revenue - COGS) / Revenue |
| Operating margin | Operating income / Revenue |
| Net margin | Net income / Revenue |
Cost of goods sold and operating expenses are entered before depreciation and amortisation, which are their own lines.
Related reading
Where the figures behind a ratio come from, and what it takes to trust them.
- Glossary
General Ledger
The general ledger is the master record of an entity's accounts, holding every posted debit and credit by account and period. Subledgers feed it, the chart of accounts defines its structure, and the trial balance is its summary.
- Glossary
Balance Sheet Reconciliation
Balance sheet reconciliation is the practice of reconciling every balance sheet account, not just cash, on a documented schedule with a named owner and risk tier per account. It is the close deliverable auditors test first, and account reconciliation is the technique it applies, account by account.
- Glossary
Variance Analysis
Variance analysis compares an actual result against a benchmark, usually budget, forecast, or prior period, and explains the difference with specific, evidenced causes. It is distinct from flux analysis, which reviews period-over-period fluctuations during the close.
- Free tool
Financial Ratio Calculators
Every ratio from one set of statements.
- Free tool
13-Week Cash Flow Forecast
What a ratio is a snapshot of, week by week.
The formula
Gross margin = (Revenue - COGS) / Revenue
Operating margin = Operating income / Revenue
Net margin = Net income / Revenue
What the number means
The three margins answer three different questions and reporting one as "profit margin" is where most of the confusion on this term starts. Gross margin is the economics of the thing you sell. Operating margin is whether the business around it is affordable. Net margin is what is left after financing and tax, which are decisions about capital structure rather than about the business, and is the least useful of the three for comparing two companies.
The gap between gross and operating margin is the company's overhead as a share of revenue, and watching that gap over time is more informative than any one margin. A company whose gross margin is flat and whose operating margin is falling has a cost problem it can fix. One whose gross margin is falling has a pricing or a mix problem, which is harder.
Markup is not margin, and the conversion is the single most common arithmetic error on this subject. A 50% markup is a 33.3% margin. A 100% markup is a 50% margin.
margin = markup / (1 + markup) markup = margin / (1 - margin)
The tool converts both ways and prints both, because a business pricing at a 40% markup and reporting a 40% margin is overstating its profitability by a third.
A worked example
A specialty coffee roaster: 61% gross margin, 4% operating margin. The lesson: the product is excellent and the overhead is the business. Shows why "we have great margins" and "we make no money" are both true statements about the same company.
Ratios are downstream
of the close.
Connected accounts, reconciled at zero tolerance, with statements for any period and any entity. Your team approves what the agents propose, and the numbers the ratios come from are ones you can sign.