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2026-01-01
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<p>Last updated on<strong>August 26, 2025</strong></p>
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<p>Last updated on<strong>August 26, 2025</strong></p>
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<p>In business finance, profit margin is a key indicator of a company's profitability. It measures how much out of every dollar of sales a company actually keeps in earnings. In this topic, we will learn the formula for calculating profit margin.</p>
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<p>In business finance, profit margin is a key indicator of a company's profitability. It measures how much out of every dollar of sales a company actually keeps in earnings. In this topic, we will learn the formula for calculating profit margin.</p>
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<h2>List of Math Formulas for Profit Margin</h2>
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<h2>List of Math Formulas for Profit Margin</h2>
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<p>Profit margin is a way to measure a company's profitability.</p>
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<p>Profit margin is a way to measure a company's profitability.</p>
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<p>Let’s learn the<a>formula</a>to calculate<a>profit</a>margin.</p>
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<p>Let’s learn the<a>formula</a>to calculate<a>profit</a>margin.</p>
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<h2>Math Formula for Profit Margin</h2>
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<h2>Math Formula for Profit Margin</h2>
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<p>The profit margin is the<a>percentage</a><a>of</a>revenue that remains as profit after all expenses have been deducted.</p>
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<p>The profit margin is the<a>percentage</a><a>of</a>revenue that remains as profit after all expenses have been deducted.</p>
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<p>It is calculated using the formula: Profit Margin = (Net Income / Revenue) × 100</p>
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<p>It is calculated using the formula: Profit Margin = (Net Income / Revenue) × 100</p>
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<h2>Importance of the Profit Margin Formula</h2>
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<h2>Importance of the Profit Margin Formula</h2>
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<p>In business and finance, the profit margin formula is crucial for analyzing and understanding a company's profitability. Here are some key points about the importance of profit margins:</p>
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<p>In business and finance, the profit margin formula is crucial for analyzing and understanding a company's profitability. Here are some key points about the importance of profit margins:</p>
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<p>Profit margin helps compare the profitability of different companies.</p>
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<p>Profit margin helps compare the profitability of different companies.</p>
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<p>It assists in assessing financial health and operational efficiency.</p>
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<p>It assists in assessing financial health and operational efficiency.</p>
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<p>By learning this formula, business analysts can evaluate strategies for cost control and revenue enhancement.</p>
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<p>By learning this formula, business analysts can evaluate strategies for cost control and revenue enhancement.</p>
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<h2>Tips and Tricks to Memorize the Profit Margin Formula</h2>
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<h2>Tips and Tricks to Memorize the Profit Margin Formula</h2>
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<p>Many find financial formulas tricky and confusing. Here are some tips and tricks to master the profit margin formula:</p>
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<p>Many find financial formulas tricky and confusing. Here are some tips and tricks to master the profit margin formula:</p>
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<p>Think of profit margin as the "profit percentage" from sales.</p>
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<p>Think of profit margin as the "profit percentage" from sales.</p>
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<p>Use real-life business scenarios, such as calculating the profit margin on a<a>product</a>sale.</p>
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<p>Use real-life business scenarios, such as calculating the profit margin on a<a>product</a>sale.</p>
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<p>Create flashcards with the formula and practice rewriting it for quick recall.</p>
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<p>Create flashcards with the formula and practice rewriting it for quick recall.</p>
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<h2>Real-Life Applications of the Profit Margin Formula</h2>
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<h2>Real-Life Applications of the Profit Margin Formula</h2>
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<p>In real life, understanding the profit margin plays a major role in business decision-making. Here are some applications of the profit margin formula:</p>
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<p>In real life, understanding the profit margin plays a major role in business decision-making. Here are some applications of the profit margin formula:</p>
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<p>In retail, to determine the profitability of different products, profit margins are calculated.</p>
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<p>In retail, to determine the profitability of different products, profit margins are calculated.</p>
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<p>In finance, to assess the overall profitability of a company, profit margins are used.</p>
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<p>In finance, to assess the overall profitability of a company, profit margins are used.</p>
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<p>In strategic planning, profit margins help identify areas for cost reduction and pricing strategies.</p>
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<p>In strategic planning, profit margins help identify areas for cost reduction and pricing strategies.</p>
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<h2>Common Mistakes and How to Avoid Them While Using the Profit Margin Formula</h2>
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<h2>Common Mistakes and How to Avoid Them While Using the Profit Margin Formula</h2>
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<p>People often make errors when calculating profit margins. Here are some common mistakes and ways to avoid them:</p>
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<p>People often make errors when calculating profit margins. Here are some common mistakes and ways to avoid them:</p>
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<h3>Problem 1</h3>
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<h3>Problem 1</h3>
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<p>A company has a net income of $200,000 and revenue of $1,000,000. What is the profit margin?</p>
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<p>A company has a net income of $200,000 and revenue of $1,000,000. What is the profit margin?</p>
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<p>Okay, lets begin</p>
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<p>Okay, lets begin</p>
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<p>The profit margin is 20%</p>
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<p>The profit margin is 20%</p>
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<h3>Explanation</h3>
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<h3>Explanation</h3>
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<p>Profit Margin = (Net Income / Revenue) × 100 = ($200,000 / $1,000,000) × 100 = 20%</p>
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<p>Profit Margin = (Net Income / Revenue) × 100 = ($200,000 / $1,000,000) × 100 = 20%</p>
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<p>Well explained 👍</p>
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<p>Well explained 👍</p>
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<h3>Problem 2</h3>
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<h3>Problem 2</h3>
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<p>A retailer sells goods worth $500,000 and earns a net income of $50,000. What is their profit margin?</p>
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<p>A retailer sells goods worth $500,000 and earns a net income of $50,000. What is their profit margin?</p>
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<p>Okay, lets begin</p>
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<p>Okay, lets begin</p>
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<p>The profit margin is 10%</p>
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<p>The profit margin is 10%</p>
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<h3>Explanation</h3>
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<h3>Explanation</h3>
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<p>Profit Margin = (Net Income / Revenue) × 100 = ($50,000 / $500,000) × 100 = 10%</p>
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<p>Profit Margin = (Net Income / Revenue) × 100 = ($50,000 / $500,000) × 100 = 10%</p>
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<p>Well explained 👍</p>
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<p>Well explained 👍</p>
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<h3>Problem 3</h3>
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<h3>Problem 3</h3>
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<p>A tech company has a revenue of $2,000,000 and a net income of $100,000. Calculate the profit margin.</p>
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<p>A tech company has a revenue of $2,000,000 and a net income of $100,000. Calculate the profit margin.</p>
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<p>Okay, lets begin</p>
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<p>Okay, lets begin</p>
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<p>The profit margin is 5%</p>
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<p>The profit margin is 5%</p>
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<h3>Explanation</h3>
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<h3>Explanation</h3>
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<p>Profit Margin = (Net Income / Revenue) × 100 = ($100,000 / $2,000,000) × 100 = 5%</p>
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<p>Profit Margin = (Net Income / Revenue) × 100 = ($100,000 / $2,000,000) × 100 = 5%</p>
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<p>Well explained 👍</p>
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<p>Well explained 👍</p>
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<h3>Problem 4</h3>
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<h3>Problem 4</h3>
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<p>A bakery generates $120,000 in revenue and has a net income of $30,000. What is the profit margin?</p>
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<p>A bakery generates $120,000 in revenue and has a net income of $30,000. What is the profit margin?</p>
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<p>Okay, lets begin</p>
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<p>Okay, lets begin</p>
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<p>The profit margin is 25%</p>
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<p>The profit margin is 25%</p>
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<h3>Explanation</h3>
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<h3>Explanation</h3>
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<p>Profit Margin = (Net Income / Revenue) × 100 = ($30,000 / $120,000) × 100 = 25%</p>
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<p>Profit Margin = (Net Income / Revenue) × 100 = ($30,000 / $120,000) × 100 = 25%</p>
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<p>Well explained 👍</p>
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<p>Well explained 👍</p>
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<h2>FAQs on Profit Margin Formula</h2>
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<h2>FAQs on Profit Margin Formula</h2>
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<h3>1.What is the profit margin formula?</h3>
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<h3>1.What is the profit margin formula?</h3>
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<p>The formula to find the profit margin is: Profit Margin = (Net Income / Revenue) × 100</p>
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<p>The formula to find the profit margin is: Profit Margin = (Net Income / Revenue) × 100</p>
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<h3>2.Why is the profit margin important?</h3>
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<h3>2.Why is the profit margin important?</h3>
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<p>Profit margin is important because it helps assess a company's profitability and compare it with industry standards.</p>
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<p>Profit margin is important because it helps assess a company's profitability and compare it with industry standards.</p>
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<h3>3.What is the difference between gross profit margin and net profit margin?</h3>
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<h3>3.What is the difference between gross profit margin and net profit margin?</h3>
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<p>Gross profit margin considers only direct costs (like production costs), while net profit margin accounts for all expenses, including operating and non-operating costs.</p>
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<p>Gross profit margin considers only direct costs (like production costs), while net profit margin accounts for all expenses, including operating and non-operating costs.</p>
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<h3>4.How can a company improve its profit margin?</h3>
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<h3>4.How can a company improve its profit margin?</h3>
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<p>A company can improve its profit margin by increasing revenue, reducing costs, or both.</p>
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<p>A company can improve its profit margin by increasing revenue, reducing costs, or both.</p>
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<h2>Glossary for Profit Margin Formula</h2>
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<h2>Glossary for Profit Margin Formula</h2>
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<ul><li><strong>Profit Margin:</strong>A financial metric that shows the percentage of revenue that exceeds the costs of production.</li>
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<ul><li><strong>Profit Margin:</strong>A financial metric that shows the percentage of revenue that exceeds the costs of production.</li>
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<li><strong>Net Income:</strong>The total profit of a company after all expenses,<a>taxes</a>, and costs have been subtracted from total revenue.</li>
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<li><strong>Net Income:</strong>The total profit of a company after all expenses,<a>taxes</a>, and costs have been subtracted from total revenue.</li>
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<li><strong>Revenue:</strong>The total income generated by the sale of goods or services related to the company's primary operations.</li>
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<li><strong>Revenue:</strong>The total income generated by the sale of goods or services related to the company's primary operations.</li>
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<li><strong>Gross Profit Margin:</strong>The percentage of revenue remaining after deducting the cost of goods sold (COGS).</li>
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<li><strong>Gross Profit Margin:</strong>The percentage of revenue remaining after deducting the cost of goods sold (COGS).</li>
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<li><strong>Operating Income:</strong>The profit realized from a business's operations, after deducting operating expenses like wages and cost of goods sold.</li>
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<li><strong>Operating Income:</strong>The profit realized from a business's operations, after deducting operating expenses like wages and cost of goods sold.</li>
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</ul><h2>Jaskaran Singh Saluja</h2>
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</ul><h2>Jaskaran Singh Saluja</h2>
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<h3>About the Author</h3>
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<h3>About the Author</h3>
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<p>Jaskaran Singh Saluja is a math wizard with nearly three years of experience as a math teacher. His expertise is in algebra, so he can make algebra classes interesting by turning tricky equations into simple puzzles.</p>
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<p>Jaskaran Singh Saluja is a math wizard with nearly three years of experience as a math teacher. His expertise is in algebra, so he can make algebra classes interesting by turning tricky equations into simple puzzles.</p>
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<h3>Fun Fact</h3>
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<h3>Fun Fact</h3>
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<p>: He loves to play the quiz with kids through algebra to make kids love it.</p>
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<p>: He loves to play the quiz with kids through algebra to make kids love it.</p>