How to Find a Profit Margin Ratio

by Mark Kennan
Businesses aim to maximize the portion of sales they keep as profit.


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The profit margin ratio measures the portion of every dollar that you earn that you keep as profit. The profit margin ratio is reported in the form X:1, where X is the profit per dollar. For example, a profit margin ratio of 0.15:1 means that for every dollar of revenue, you have 15 cents of profit. To figure the profit margin, you must know your revenue and your expenses.


Subtract your expenses from your total company revenue to find the company's profit. For example, if you have $7.6 million in expenses and $10 million in revenue, subtract $7.6 million from $10 million to get a profit of $2.4 million.


Divide the profit by the net revenue to find the profit margin rate. In this example, divide $2.4 million by $10 million to get 0.24.


Substitute the result for X in the ratio X:1 to report the profit margin ratio. Completing the example, plug in 0.24 for X to find the profit margin ratio equals 0.24:1.

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