How does a business calculate its profit margin?

A business calculates its profit margin by dividing its profit by its total revenue, then multiplying by 100 to get a percentage. The basic formula is: Profit Margin = (Net Profit / Revenue) x 100. There are different types of profit margins depending on what costs are included. Gross profit margin subtracts only the cost of goods sold from revenue. Operating profit margin also deducts operating expenses like salaries and rent. Net profit margin is the most comprehensive, subtracting all expenses including taxes and interest. For example, if a business earns $500,000 in revenue and has $400,000 in total expenses, its net profit is $100,000, giving a net profit margin of 20%.