1. ## percentage (Excel 2000)

Percentage
My question is from a dummy(myself),and it relates not for an Excel but pure mathematics
How does one calculate the profit? I have a PurchasePrice and a SalesPrice, and i must calculate the profit in selling the bought product.In my view, i must at first define the difference between the Sales and the Purchase price with the equation Delta = SalesPrice - PurchasePrice.
Then to find the percentage, i must divide the SalesPrice to the Delta( the difference)
Or : Profit percentage = SalesPrice/Delta
AM i right, and are my calclulations right?

2. ## Re: percentage (Excel 2000)

In a nutshell...

Sale Price less Purchase Price = Gross Profit (or in your case, DELTA)

Gross Profit / Sale Price = Gross Profit Percentage.

To demostrate, let's say you sold a famous widget for 50

3. ## Re: percentage (Excel 2000)

Ricky is correct.

Just be careful if you are going the other way - adding profit to cost to determine price: Cost * 110% is not a 10% profit, it is a 9.09% profit (=1-100/110). The correct way to determine a price which will yield a 10% profit above cost is cost/(1-profit%); if cost is 100, and profit is to be 10%, then price will be 111.11 (=100/(1-0.1)). Proof: 1-100/111/.11=10%.

Just to be further annoying, to calculate ONLY the profit amount to add using this approach, the formula is =cost*(1/(1-profit%)-1).

Are we confused yet? I live in this quagmire.

4. ## Re: percentage (Excel 2000)

I am going to disagree with Tricky. I think that the percent profit is the gross profit (sale price minus purchase price) divided by the Purchase Price times 100. If you buy an item for \$1 and sell it for \$2, then your percent profit is ((2-1)/1)*100=100%.

5. ## Re: percentage (Excel 2000)

I don't think so. If you purchase an item for \$.20 and sell it for \$.30. then your percent profit must clearly be > 100% since \$.30 is greater than \$.20. Your percent profit is based on your investment, not your return. In your example, (.30/.20)*100=150%.

6. ## Re: percentage (Excel 2000)

Legare, I in turn disagree with you. I -always- measure profit as a percentage of selling price, not as a percentage above cost. In Ricky's example of \$0.20 cost and \$0.50 price, I measure profit as \$0.30/\$0.50, or 60%. Margin (which is one of those things that I have my own definition for ...) in this case is 150%, because I define margin as profit/cost, or \$0.30/\$0.50.

7. ## Re: percentage (Excel 2000)

Profit is Revenue less Cost. But you're asking about a Profitability Ratio.

Gross Profit Margin = (Sales - Cost of sales)/Sales
(The result is a decimal; when formatted in Excel it appears as a proper %, therefore you do not have to multiply by 100.)

Net Profit Margin = (Earnings after taxes)/Sales

That is the normal measurement of Profit -- it's a percentage of Sales, not of Cost.
(Moyer, McGuigan, Kretlow, Contemporary Financial Management)

8. ## Re: percentage (Excel 2000)

OK, I am not an accountant so I will defer to those of you who are. It just does not seem logical to me. If I buy something for \$.20 and make a 60% profit, I would expect to multiply .20 times .6 to get a profit of \$.12 on my investment of \$.20.

9. ## Re: percentage (Excel 2000)

Well, everyone has made some good points. In the restaurant business, we use two ratios to guage profitability:

Food cost = Cost of goods sold/Sales Price
Net Profit Margin = Net Profit/Net Sales

Typically, when we look at price increases or other operational issues, the net profit margin is a big factor. Believe it or not, a typical quick serve restaurant takes about 7-13 cents of every dollar to the bottom line.

I believe that the dollar profit/dollar cost would result in what would be referred to as Return On Investment.

Heck, I'm no accountant, but if you watch the pennies, the dollars will take care of themselves!

10. ## Re: percentage (Excel 2000)

I gathered from the original post, Markus was looking for a short, simple answer.

There are plenty of ways to complicate the matter but as I look at the P&L in front of me, I can say for sure that Net Sales is the 100% line and every expense, including COG (cost of goods) is represented as a percentage of the Net Sales. Once all of the expenses (cost of doing business) is subtracted from the Net Sales, what's left is Net Profit, again represented as a percentage of Net Sales.

11. ## Re: percentage (Excel 2000)

Your calculation is commonly referred to as Mark-Up. And I understand and agree with your logic; but that's not the commonly-used definition of profit.

12. ## Re: percentage (Excel 2000)

Legare, The calculation you refer to is the mark up, many businesses go under because they confuse the mark-up with margin. i.e. they have a mark up of 60%, therefore they can spend 60% of every revenue dollar, which leaves them with less than the cost of the item.
The calculations wich give the % based on Sell-Cost / Sell is the margin, and is the amount "available to spend" with enough residual to buy another item to sell.
My <img src=/S/2cents.gif border=0 alt=2cents width=15 height=15>
<img src=/S/flags/NewZealand.gif border=0 alt=NewZealand width=30 height=18>

13. ## Re: percentage (Excel 2000)

I would call Legare's calculation, return on investment.

In accounting, Ricky's calculations are called gross margin and gross margin percentage.

Profit can be a little more complicated, if you've got some fixed costs, etc. but that wasn't the question.

Cheers

14. ## Re: percentage (Excel 2000)

>Approach love and cooking with reckless abandon
<img src=/w3timages/blackline.gif width=33% height=2><img src=/w3timages/blackline.gif width=33% height=2>

But not cash flow! <img src=/S/laugh.gif border=0 alt=laugh width=15 height=15>

15. ## Re: percentage (Excel 2000)

As I'm sure you know: Cash Flow is King.

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