# Profit Margin Calculator

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Instructions:
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You can use this Profit Margin Calculator, by providing the net income and sales in the form below:

## Profit Margin Calculator

More about the
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Profit Margin
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so you can better use the results provided by this solver.

The Profit Margin is the ratio of net income to sales. This ratio is a profitability measure, and it indicates how many dollars in net income a firm has for each $1 in sales.

### The Profit Margin Formula

In order to calculate the Profit Margin, we use the following profit calculation formula:

\[ \text{Profit Margin} = \displaystyle \frac{\text{Net Income}}{\text{Sales}}\]Other measures of profitability that you may be interested in are the return on assets or return on equity .

Also, the net income is used to compute another related measure, which is the price earnings ratio , which measures the ratio of price per share to earnings per share.

### Example of the calculation of the profit margin

**Question**: Consider the example of a firm that made $1,000,000 in profit and their sales amounted to $9,800,000.
Compute the firm's profit margin.

Solution:

This is the information we have been provided with:

Net Income = | \(1000000\) |

Sales = | \(9800000\) |

The profit margin is computed using the following formula:

\[ \begin{array}{ccl} PM & = & \displaystyle \frac{\text{Net Income}}{\text{Sales}} \\\\ \\\\ & = & \displaystyle \frac{\text{\textdollar}1000000}{\text{\textdollar}9800000} \\\\ \\\\ & = & 0.1 \end{array} \]Therefore, the profit margin for the given net income of \(\text{\textdollar}1000000\) and sales of \(\text{\textdollar}9800000\) is \(PM = 0.1 = 10.2\%\). This means the company generates \(\text{\textdollar}0.1\) in net income for every $1 in sales.