Operating Profit Percentage

Posted in Finance, Accounting and Economics Terms, Total Reads: 990
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Definition: Operating Profit Percentage

A company’s profit can be divided into two parts- Operating Profit and Non-Operating Profit. Operating profit is the profit realized due to a company’s main operations. Non-operating profit is due to investment activities, sales of assets etc. But these actions cannot be continued regularly and for a very long time.

Operating profit percentage is one of the indicators of profitability. It shows how much operating profit is realized due to sales. A high operating profit is good for a company. It shows that the company is able to generate sales from its operations.


The formula for calculating Operating Profit Percentage is:

Operating profit percentage = (operating profit/ Net Sales) *100

Where

Operating Profit = Net Sales – (Cost of Goods Sold + Sales, General and Administrative expenses)

 

Example:

For Company A, net sales = 10,0000 Cr. Cost of Goods Sold = 5000 cr. Sales, General and administrative expense = 500 Cr. Then Operating Profit Percentage can be calculated as:

Operating Profit    = 10,000 – (5000+500)

                          = 4500Cr.

Operating Profit Percentage = (4500/10000) * 100

                                       = 45%

Hence, this concludes the definition of Operating Profit Percentage along with its overview.

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