Definition of Profit Margin
What does the term "profit margin" mean? What is meant by the term "profit margin"?
How much profit does a company generate for each $1 in sales that it generates? This is the "profit margin".
To get a company's "profit margin", you need to divide net income (profit) by revenues.
For instance - a company generates $1 million in profit on $10 million in total sales. Divide 1 by 10 and we are left with 0.10. "Profit Margin" is usually expressed as a percentage, so in this case the company would have a profit margin of 10%.
Let's say that this same company reports $2 million in profits on $10 million in sales. This would leave the company with a profit margin of 20%.
Profit margin is an important metric to keep an eye on.
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