Calculating Profit Ratio (Gross Margin)

When looking at a company's income statement to calculate the Profit Ratio (Gross Margin)

PM = Net Profit / Sales

Do you include "other" revenue in the equation?

Example: XYZ Ltd Income Statement for 2012

Revenues from Sales of Goods = \$100

Other operating revenue = \$50

Net Profit = \$ 30

Should the Profit Margin ratio equation be:

PM = Net Profit / Revenues from Sales of Goods
PM = 30 / 100
PM = 30%

or

PM = Net profit / Revenue from Sales of Goods + Other operating revenue
PM = 30 / (100 + 50)
PM = 20%

According to Understanding The Income Statement, it should be the former. Observe the link's sample income statement: The profit margin is Net Sales over Net Income. Net Income, meanwhile, is the sum of

• Net Sales (+)
• Cost of Sales (-)
• Operating Expenses (SG&A) (-)
• Other Income (Expense) (+/-)
• Extraordinary Gain (Loss) (+/-)
• Interest Expense (-)
• Taxes (-)

So you would not want to account for one of the above factors in addition to Net Sales.

You need to clarify through a description what you want, many different margin names are often used interchangeably(EBIT = Operating Income etc.) Gross Margin the way I think you're asking would use Gross Profit, which is Revenue - Cost of Goods Sold. And You would arrive at Gross Margin through Gross Profit / Revenue.