Gross profit, net profit, margins and EBITDA
1 min read
Updated 29 Sep 2026
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AI summary
Profit measures owners and banks look at, with formulas and an example.
3 sections
Formulas
| Measure | Formula |
|---|---|
| Gross profit | Sales − Cost of goods sold |
| GP margin % | Gross profit ÷ Sales × 100 |
| EBITDA | Net profit + Interest + Tax + Depreciation + Amortisation |
| EBITDA margin % | EBITDA ÷ Sales × 100 |
| Net profit margin % | Net profit after tax ÷ Sales × 100 |
Example
Sales ₹20,00,000; COGS ₹14,00,000; indirect expenses ₹3,10,000 (including depreciation ₹60,000 and interest ₹40,000); tax ₹60,000.
- Gross profit ₹6,00,000 → GP margin 30%
- Net profit before tax ₹2,90,000; after tax ₹2,30,000 → NP margin 11.5%
- EBITDA = 2,30,000 + 40,000 + 60,000 + 60,000 = ₹3,90,000 → 19.5%
Reading them
- Falling GP % → price pressure, higher purchase cost, stock loss or wrong closing stock.
- EBITDA shows operating strength before financing and depreciation choices; banks use it to judge repayment capacity.
PreviousWorking capital and the working capital cycle Next in Financial Statements Liquidity and solvency ratios: current, quick and debt-equity
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