## Formula to Calculate Profit Percentage

Profit Percentage formula calculates the financial benefits that are left with the entity after it has paid all the expenses and is expressed a percentage of cost price or selling price. **Profit Percentage** is of two types a) Markup expressed as a percentage of cost price while b) Profit margin is the percentage calculated using the selling price.

The profit Percentage formula is calculated as follows.

**Profit % (Markup) = (Profit / Cost Price) * 100**

**Profit % (Margin) = (Profit / Revenues) * 100**

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For eg:

Source: Profit Percentage Formula (wallstreetmojo.com)

### Calculation Examples of Profit Percentage

Let’s see some simple to advanced examples to understand it better.

#### Example #1

Due to heavy demand by CPA and CFA candidates, Joseph, the owner of the stationery shop, purchased 150 pieces of normal calculators at the rate of 35 per piece and 80 pieces of financial calculators at the rate of 115 per piece.

He spent an amount of $2500 on transportation and other charges. He labeled the normal calculators with $50 and financial calculators at $150. He also decided to provide a discount of 5% on every calculator.

Now he wants to know the profit % earned by him.

**Solution:**

Use below given data for calculation of profit percentage formula.

Quantity | Cost Price | Selling Price | Discount | Transportation Cost |
---|---|---|---|---|

150 | 35 | 50 | 5% | 2500 |

80 | 115 | 150 | 5% |

Calculation of profit can be done as follows:

Profit = 18525 – 16950

Profit will be –

**Profit = 1575**

Calculation of profit percentage can be done as follows:

= (1575 / 16950) * 100

Profit % will be –

#### Example #2

The annual revenue made by Wayne Inc. Ltd, a Foot-ware manufacturing company, amounted to $100,000 million in the previous year based on the company’s actual receipts and payments. The cash profit is 1% of revenues. The credit salesCredit SalesCredit Sales is a transaction type in which the customers/buyers are allowed to pay up for the bought item later on instead of paying at the exact time of purchase. It gives them the required time to collect money & make the payment. read more (not included in annual revenues) made during the year amounted to $2300 million. Wayne charges an annual depreciation of $800 million on its assets.

Management of Wayne Inc wants to find Book Profits and calculate the profit percentage for both books.

**Solution:**

Use below given data for calculation of profit percentage.

- Annual Revenues: 100000
- Cash Profit: 1%
- Credit Sales: 2300
- Depreciation: $800

Calculation of Cash Profit will be –

Cash Profit = 100000 * 1% =1000

Calculation of Book ProfitBook ProfitBook Profit is the profit amount that a business earns from its operations & activities but has not been realized yet. It is not tracked by analysts or stakeholders & its calculation is relevant only to evaluate a Company’s tax liability. read more can be done as follows –

Book Profit = 1000 – 800 + 2300

Book Profit will be –

Book Profit = 2500

Calculation of Book Profit percentage formula can be done as follows –

= 2500 / (100000 + 2300 ) *100

Book Profit %will be –

#### Example #3

Mr. Bruce Wayne, a startup investor, wants to invest in a new IT startup based on the profitability of the project. That means the idea that can show a higher profit % will get eligible for fund allotments.

Two companies Oracle and Adobe, present their ideas with the expected revenue generation and associated costs.

Advice Mr. Bruce Wayne to make a decision as to which company should be selected as per the criteria.

Income Statement | Oracle | Adobe |
---|---|---|

Revenue | $1,000.00 | $2,250.00 |

Cost of Goods Sale (COGS) | $200.00 | $550.00 |

Gross Profit | $800.00 | $1,700.00 |

Operating Expenses | $600.00 | $1,300.00 |

Operating Profit | $200.00 | $400.00 |

Taxes @ 30% | $60.00 | $120.00 |

Net Profit | $140.00 | $280.00 |

**Solution:**

Calculation of profit percentage for Oracle can be done as follows:

= (140/ 1,000) * 100

Profit % for Oracle will be –

Calculation of profit percentage for Adobe can be done as follows:

= (280 / 2,250) * 100

Profit % for Adobe will be –

##### Conclusion:

__ __Adobe shows higher revenues of $ 2,250,000 and higher net profits of $280,000 in its income statements than Oracle with revenues and net profits of $1,000,000 and $140,000, respectively. But on calculating the profit percentage of both the companies, Oracle outperforms Adobe with profit% of 14% for Oracle and 12% for Adobe. Hence based on profit percentage, Mr. Wayne should select Oracle for fund allocation.

#### Example #4

let’s say Mr. Bruce Wayne won $ 10 million in a lottery 5 years ago and invested all of it in a diversified portfolio as follows:

Income Statement | Allocation (%) | Amount |

Real Estate Properties | 25% | 2500000.00 |

Equity Market or Stocks | 40% | 4000000.00 |

Government Bond or Debt Funds | 20% | 2000000.00 |

Fixed Deposits | 10% | 1000000.00 |

Cash in Savings Account | 5% | 500000.00 |

Total | 100% | 10000000.00 |

# After five years, he conducted a valuation of all of his assets and investments in a recent point of time. As per the recent valuation, he wants to know the net profit percentage he has earned during a period of 5 years.

The current valuation of his portfolio is shown as follows:

Calculation of Net Profit can be done as follows:

Net Profit = 10350000 – 10000000

Net Profit will be –

**Net profit = 350,000**

The calculation can be done as follows:

=350,000 / 10,000,000 * 100

Profit % will be –

##### Conclusion:

Mr. Wayne allocated the max portion in the Equity market and stocks, which results in negative returns due to depressions in both global and domestic market, but since he diversified his portfolio into various assets, he ultimately ended up with a profit percentage of 3.5% and earned an amount of $350,000 on its overall investment.

### Relevance and Use of Profit Percentage Formula

- Profit percentage is a top-level and the most common tool to measure the profitability of a business. It measures the ability of the firm to convert sales into profits. i.e., 20% means the firm has generated a net profit of $20 for every $100 sale.
- It not only gauges the capacity of the management to generate higher sales/ revenues but also takes into account how efficiently it reduces its costs.
- The de-facto, standard profitability indicator: the above point basically says that profit percentage is derived from two components.
- Sales and Expenses
- Profit percentage Equation = (Net Sales – Expenses) / Net Sales or 1 – (Expenses / Net Sales)
- So if the ratio of Expenses to Net sales could be minimized, a higher profit % could be achieved.
- So either increases the sales or lower the costs/expenses.

- Investors and financiers like venture capital, private equity, etc. always evaluate the profit percentage of the startup so as to check the potential of the service or product.
- Large corporations have to reveal the expected marginal revenuesMarginal RevenuesThe marginal revenue formula computes the change in total revenue with more goods and units sold." The value denotes the marginal revenue gained. Marginal revenue = Change in total revenue/Change in quantity sold. read more it is going to generate with the additional funds from issuing debt bonds or equity shares or raising a loan. The companies generally present a future expected profit % figure to its investors.
- The profit % figure is the most frequently used tool by analysts to evaluate stocks in both the primary market (IPOs)Primary Market (IPOs)The primary market is where debt-based, equity-based or any other asset-based securities are created, underwritten and sold off to investors. It is a part of the capital market where new securities are created and directly purchased by the issuer.read more and secondary market.

### Recommended Articles

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