Profitability Ratios Formula (Examples) | How to Calculate Profitability Ratios?

In this video on Profitability Ratios Formula, here we discuss how to calculate Profitability Ratios (Gross Margin, Net Margin, EBITDA Margin) using practical examples.

𝐖𝐡𝐚𝐭 𝐢𝐬 𝐏𝐫𝐨𝐟𝐢𝐭𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐑𝐚𝐭𝐢𝐨𝐬 𝐅𝐨𝐫𝐦𝐮𝐥𝐚?
--------------------------------------------------------------------

Profitability Ratios is used by companies to track their operating performance.

𝐋𝐢𝐬𝐭 𝐨𝐟 𝐏𝐫𝐨𝐟𝐢𝐭𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐑𝐚𝐭𝐢𝐨𝐬 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
----------------------------------------------------------------

#1 - Gross Profit Margin Ratio

Gross Profit Margin = (Revenue – Cost of Goods Sold) / Revenue*100%

#2 - Net Profit Margin Ratio

Net Profit Margin = PAT / Revenue * 100%

#3 - EBITDA Margin Ratio

EBITDA Margin = EBITDA / Revenue * 100%

𝐄𝐱𝐚𝐦𝐩𝐥𝐞 𝐨𝐟 𝐏𝐫𝐨𝐟𝐢𝐭𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐑𝐚𝐭𝐢𝐨𝐬 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
-----------------------------------------------------------------------

Let us consider an example to calculate the profitability ratios for a company called ABC Limited. ABC Limited earned $150,000 in total net sales at the end of the financial year along with the following expenses. ABC Limited has the following information -

Cost of Goods Sold - 8000
Revenue - 170000
Net Profit (PAT) - 35,000
EBITDA - 50000

Using the above formula we will calculate Gross Profit Margin Ratio, Net Profit Margin Ratio and EBITDA Margin Ratio.

Calculation of Gross Profit Margin

= (170000 - 8000) / 170000 * 100%
= 95.29%

Calculation of Net Profit Margin Ratio

= $35,000 / 170000 * 100%
= 20.59%

Calculation of EBITDA Margin Ratio

= 50000 / 170000 *100%
= 29.41%

[nishantchaudhary]

Sir i can ask u one question of groos profit ratio