Weighted Harmonic Mean
Weighted Harmonic Mean is calculated with the help of the following formula:
WHM
Case 1
Consider a company consisting of only two divisions A and B. The calculation of the net profit margin for the two divisions as well as for the company as a whole is shown below:
Division A
Division B
Whole company (A + B)
Net profits (Rs. crore)
6
1
7
Sales (Rs. crore)
40
80
Net profit margin
15%
2.5%
8.75%
Here we see that the net profit margin for the company as a whole is 8.75% which is nothing but the Simple Arithmetic Mean of the net profit margins of the two divisions A and B.
So the simple arithmetic mean has a significance here. Note that the net profit margins of the two divisions A and B have been calculated with the same denominator (Sales = Rs.40 crore). In general, we can say that the appropriate mean for a set of ratios which have been calculated with the same denominators is the simple arithmetic mean.