Profit Percentage Formula (Table of Contents)
What is Profit Percentage Formula?
Extra amount the company received from the customer over what the company paid to the vendor is called as the profit. The net income generated by a company divided by its sales and the result is called the profit percentage. Profit percentage is used for sale, and cost management, and thus overall performance assessment, and it is an indicator of pricing power, cost control, and strategic positioning.
Formula For Profit Percentage is given below
Net Profit Percentage = (Net Profit / Total Sales) * 100
Operating Profit Percentage = (Operating Profit / Total Sales) * 100
Examples of Profit Percentage Formula (With Excel Template)
Let’s take an example to understand the calculation of Profit Percentage in a better manner.
Profit Percentage Formula – Example #1
From the given information, calculate a) Gross Profit Percentage b) Net Profit Percentage c) Operating Profit Percentage.
Solutions:
Total Sales is calculated using the formula given below
Total Sales = Sales – Sale Return
- Total Sales = $61,500 – $1,500
- Total Sales = $60,000
Gross Profit Percentage is calculated using the formula given below
Gross Profit Percentage = [(Total Sales – Cost of Sale) / Total Sales] * 100
- Gross Profit Percentage = [($60,000 – $37,500) / $60,000] * 100
- Gross Profit Percentage = 37.50%
Net Profit is calculated using the formula given below
Net Profit = Total Sale – Cost of Sales – Office and Administration Expenses – Selling and Distribution Expenses – Interest on Debenture – Loss by Fire + Income from Investment
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- Net Profit = $60,000 – $37,500 – $2,250 – $3,900 – $1,500 – $3,600 + $750
- Net Profit = $12,000
Net Profit Percentage is calculated using the formula given below
Net Profit Percentage = (Net Profit / Total Sales) * 100
- Net Profit Percentage = ($12,000 / $60,000) * 100
- Net Profit Percentage = 20%
Operating Profit is calculated using the formula given below
Operating Profit = Total Sales – Cost of Sales – Office and Administration Expenses – Selling and Distribution Expenses
- Operating Profit = $60,000 – $37,500 – $2,250 – $3,900
- Operating Profit = $16,350
Operating Profit Percentage is calculated using the formula given below
Operating Profit Percentage = (Operating Profit / Total Sales) * 100
- Operating Profit Percentage = ($16,350 / $60,000) * 100
- Operating Profit Percentage = 27.25%
Profit Percentage Formula – Example #2
Networking Inc is a Bag manufacturing company which manufactures all types of bags like travel bags, School bags, Laptop bags and so on and Network Inc established its business in the market successfully. Networking Inc management has a forthcoming meeting with its investors, so management of Networking Inc is looking to find out gross profit and Gross profit percentage from the following Income statement of Networking Inc at the end of the year.
Solutions:
Gross Profit is calculated using the formula given below
Gross Profit = Total Sales – Cost of Goods Sold
- Gross Profit = $3,000,000 – $650,000
- Gross Profit = $2,350,000
So Networking Inc has a Gross profit of $23,50,000, it means that goods which networking Inc Sold for $3,000,000 cost them $650,000 to produce and the company can utilize $23,50,000 to pay its other expenses.
Gross Profit Percentage is calculated using the formula given below
Gross Profit Percentage = ((Total Sale – Cost of Goods Sold) / Total sales) * 100
- Gross Profit Percentage = (($3,000,000 – $650,000) / $3,000,000) * 100
- Gross Profit Percentage = 78.33%
So Networking Inc getting 78.33% gross profit on bags, which tells networking Inc that 78.33% of its net sales will become gross profit and for every dollar of sales networking Inc generates, they earn 78.33% in profit before expenses are paid.
Profit Percentage Formula – Example #3
From the following income statement of Coca- Cola Company for the year ended Dec 2011 and Dec 2010 calculate the Gross Profit Percentage and Operating Profit Percentage for both the years.
Solution:
Gross Profit Percentage is calculated using the formula given below
Gross Profit Percentage = [(Total Revenue – Cost of Revenue) / Total Revenue] * 100
For Dec 31-2011
- Gross Profit Percentage = (($46,542,000 – $18,216,000) / $46,542,000) * 100
- Gross Profit Percentage= 60.86%
For Dec 31-2010
- Gross Profit Percentage = (($35,119,000 – $12,693,000) / $35,119,000) * 100
- Gross Profit Percentage = 63.86%
Operating Profit Percentage is calculated using the formula given below
Operating Profit Percentage = [(Total Revenue – Cost of Revenue – Selling General and Administrative ) / Total Revenue] * 100
For Dec 31-2011
- Operating Profit Percentage = (($46,542,000 – $18,216,000 – $18,172,000) / $46,542,000)) * 100
- Operating Profit Percentage = 21.82%
For Dec 31-2011
- Operating Profit Percentage = (($35,119,000 – $12,693,000 – $13,977,000) / $35,119,000) * 100
- Operating Profit Percentage= 24.06%
Explanation
Profit percentage formula is nothing but the Companies Total revenues (Total Sales) minus its cost of revenues (Cost of Goods sold or Cost of Sales) Divided by the Total revenues (Total Sales). Profit percentage formula can tell us a lot about the economic nature of the company which we cannot get to know from gross profit. Profit percentage formula is the percent of sales that’s available to cover their expenses and provide a profit. Operating profit percentage is the difference between sales revenues, cost of goods sold and other operating expenses divided by total sales. An Increase in operating margin might reflect a higher gross profit margin and/or better control of operating costs. Calculation of profits Percentage formula can be difficult in determining them and considering what is accurate for the business.
Relevance and Uses of Profit Percentage Formula
Companies followed profit percentage numbers closely and it is one of the most followed numbers in finance. Before investing any stock shareholders or investors looks net profit percentage closely because it shows how superior company is performing and how much profit will investors or share hordes will get from total revenue. In the Net profit percentage numbers, not a fixed and it is a percentage of sales, so it is used to compare net profit percentage with other competitors in the same market, and over time. Profit Percentage is nothing but the business evaluation formula.
Gross profit percentage is closely watched by potential investors for any small increases or decreases. Profit Percentage formula tells us how effectively a business turns its sales into profit and how efficiently a business is run, whether a business is able to add value during the production process or not.
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