Profitability calculator
Gross margin, operating profit and return on assets from four lines of accounts.
How it works
Operating profit = revenue − COGS − operating expenses · ROA = operating profit ÷ total assets
Four numbers every set of accounts contains, turned into the three ratios that say whether a business is working. Gross margin is about pricing and production; net margin adds the cost of running the place; return on assets asks whether the capital sitting in the balance sheet is earning its keep. A business can have a healthy gross margin and a poor ROA, and that combination points somewhere very specific — usually at too much stock or too much unused plant.
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Frequently asked questions
- Is net margin here the same as net profit margin?
- Almost. This uses operating profit, so it excludes interest and tax. It measures the business, not its financing or its tax position.
- Why use total assets rather than equity?
- Return on assets asks what the whole asset base earns, regardless of who funded it. Return on equity answers the owner's question instead, and is sensitive to how much debt you carry.
- Which total assets figure should I use?
- The average across the period is more accurate than the closing balance, especially if you bought or sold something large during the year.