In this tutorial, we will discuss calculating profit and profit margin in Excel using custom formulas. Specifically, we will cover how to calculate gross profit, operating profit, and net profit and how to use these formulas in Excel.
Calculating Gross Profit Margin
Gross profit margin measures a company’s profitability, calculated by taking the gross profit (total income minus cost) divided by total income.
To calculate the gross profit margin using Excel:
- Open a new Excel sheet and enter your data
- In a blank cell, enter the formula for gross profit margin: (total income – cost) / total income, which will be (B2-B3)/B2 in our case.
- In our example, the total income is $300,000 (B2), and the cost is $60,000 (B3). So, the gross profit would be ($300,000 – $60,000) = $240,000.
- To calculate the margin, we must divide the gross profit by the total income. So, the gross profit margin would be ($240,000 / $300,000) = 0.8 or 80%
You might get the values in decimal points. To get the value in percentage, simply left-click the cell and select “Percentage” under the category.
Calculating Operating Profit Margin
Operating profit margin is a measure of a company’s profitability from its operations, calculated by taking operating profit (gross profit minus operating expenses) divided by total income.
To calculate the operating profit margin using Excel:
- In a blank cell, enter the formula for operating profit margin: (gross profit – operating expenses) / total income or (B2-B3-B4)/B2
- In our example, the gross profit is $240,000, and the operating expenses are $10,000 (B4). So, the operating profit would be ($240,000 – $10,000) = $230,000
- To calculate the margin, we need to divide the operating profit by the total income. So, the operating profit margin would be ($230,000 / $300,000) = 0.76 or 76%
Calculating Net Profit Margin
Net profit margin is a measure of a company’s profitability after all expenses have been taken into account, calculated by taking net profit (total income minus all expenses, including interest and taxes divided by total income.
To calculate the net profit margin using Excel:
- In a blank cell, enter the formula for net profit margin: (total income – cost – expenses – interest – taxes)) / total income or =(B2-B3-B4-B5-B6)/B2
- In our example, the total income is $300,000, cost is $60,000, expenses are $10,000, interest is $3,000, and taxes are $5,000. So, the net profit would be ($300,000 – $60,000 – $10,000 – $3,000 + $5,000)) = $222,000
- To calculate the margin, we need to divide the net profit by the total income. So, the net profit margin would be ($222,000 / $300,000) = 0.74 or 74%
Conclusion
Using these formulas in Excel, you can easily and quickly calculate your business’s profit and profit margins. These metrics can help you make informed decisions and improve your company’s overall profitability.
