Operating profit margin is the percentage of operating profit out of total sales. It is calculated by operating profit divided by sales revenue. First, we need to calculate the operating profit, also called EBIT, which is calculated as follows:
|
Sales Revenue |
3,500,000.00 |
|
Less: Sales return |
(150,000.00) |
|
Less: Trade discount |
(200,000.00) |
|
Net Sales |
3,150,000.00 |
|
Less: Cost of Goods sold |
(1,800,000.00) |
|
Gross Profit |
1,350,000.00 |
|
Less: Operating expenses: |
|
|
Selling and administrative |
(105,000.00) |
|
Depreciation |
(400,000.00) |
|
Amortization |
(72,000.00) |
|
Operating Profit |
773,000.00 |
In the above example the operating profit margin is $773,000 and sales revenue is $3,500,000. The operating profit margin will simply be calculated as follows:
Operating profit margin = Operating profit / Sales Revenue
Operating profit margin = $773,000 / $3,500,000 = 22.08%
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