How to Calculate Total Margin Financial Ratios

by C. Taylor

Total margin describes your company's overall efficiency for generating net profit. This financial ratio takes into account all revenue generating by the company and assesses how much of it you get to keep, versus use to cover expenses. As an example, a ratio of 0.25 means that you keep 25 cents on every dollar you collect. Higher total margin ratios are always better. Increasing revenue or decreasing costs will increase this ratio and improve your company's profitability.

Add all revenues generated by the company. This should include operating revenue, such as sales and services, and non-operating revenue, such as investments and contributions.

Add all costs associated with the company, including materials, utilities, employees, taxes and licenses.

Subtract your total costs from the total revenue to calculate net income. As an example, if your company had total profits of $12 million and expenses of $9 million, your net income would be $3 million.

Divide your net income by the total revenue to calculate the total margin ratio. In the example, $3 million divided by $12 million offers a total margin ratio of 0.25.

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