Profitability ratios translate an income statement into percentages that can be compared across years, competitors and industries. This calculator builds a compact income statement from your inputs — gross profit, operating income, EBITDA, pretax and net income — and then computes five margins and three return ratios, with a DuPont check that ties them together.
How to use the profitability ratios calculator
- Enter revenue, cost of goods sold and operating expenses for the year.
- Enter the depreciation and amortization included in operating expenses, plus interest expense and income tax expense.
- For returns, add total assets, shareholders’ equity and current liabilities (averages for the year give the most accurate figures).
- The tape shows the net margin first, followed by each profit level and return. The chart shows how each revenue dollar is used.
Profitability ratio formulas
Each margin peels off one more layer of cost. Gross margin reflects pricing and production; operating margin adds overhead; net margin adds financing and taxes.
Worked example
A company sells $500,000 of goods that cost $300,000 and spends $120,000 on operating expenses, of which $20,000 is depreciation. Interest is $10,000 and income tax $14,000.
Gross profit = 500,000 − 300,000 = $200,000 → gross margin 40%
EBIT = 200,000 − 120,000 = $80,000 → operating margin 16%; EBITDA = $100,000 → 20%
Net income = 80,000 − 10,000 − 14,000 = $56,000 → net margin 11.2%
With $400,000 of assets and $250,000 of equity: ROA = 14%, ROE = 22.4%
DuPont: 11.2% × 1.25 asset turnover × 1.6 equity multiplier = 22.4% ✓
With $80,000 of current liabilities, capital employed is $320,000 and ROCE is 80,000 ÷ 320,000 = 25%. The effective tax rate is 14,000 ÷ 70,000 = 20%.
Typical margins by industry
| Industry | Gross margin | Net margin |
|---|---|---|
| Grocery retail | 25% – 30% | 1% – 3% |
| Restaurants | 60% – 70% (food cost only) | 3% – 6% |
| Manufacturing | 25% – 40% | 5% – 10% |
| Software | 70% – 85% | 15% – 25% |
These ranges are broad illustrations of how business models differ, not targets. A thin margin with very high asset turnover can produce the same ROA as a fat margin with slow turnover.
Pitfalls to avoid
- One-off items. A large asset sale or lawsuit settlement can inflate or crush net income for a single year. Look at operating margin for the underlying trend.
- Negative equity. Companies that have bought back a lot of stock can show negative equity, which makes ROE meaningless. The calculator flags this case.
- EBITDA is not cash flow. It ignores capital spending and working-capital needs, so a high EBITDA margin can coexist with weak cash generation.
For a quicker margin check on one product or a whole business, try the profit margin calculator. To see how fast assets turn into sales, use the efficiency ratios calculator.
Results are estimates for analysis and education and are not investment, tax or accounting advice.
Frequently asked questions
What is the difference between ROA and ROE?
Return on assets divides net income by everything the company owns, regardless of how it was financed. Return on equity divides by shareholders' equity only, so borrowing raises ROE without changing ROA. The gap between them is a measure of financial leverage.
What is a good net profit margin?
Across US companies a net margin of roughly 5% to 10% is common, but grocery chains often earn 1% to 3% while software firms can exceed 20%. Compare against businesses with the same model.
Why does the calculator ask for depreciation separately?
Depreciation and amortization are usually buried inside operating expenses. Entering them lets the calculator add them back to operating income to produce EBITDA and the EBITDA margin.
What is the DuPont formula?
It splits ROE into three parts: net margin × asset turnover × equity multiplier. It shows whether a high ROE comes from pricing power, efficient use of assets, or simply from more debt.
What is ROCE?
Return on capital employed is operating income (EBIT) divided by capital employed, usually total assets minus current liabilities. Because it uses profit before interest and tax, it compares businesses with different debt levels and tax situations fairly.