Profit margin

Profit margin is a financial ratio that measures the percentage of profit earned by a company in relation to its revenue. Expressed as a percentage, it indicates how much profit the company makes for every dollar of revenue generated. Profit margin is important because this percentage provides a comprehensive picture of the operating efficiency of a business or an industry. All margin changes provide useful indicators for assessing growth potential, investment viability and the financial stability of a company relative to its competitors. Maintaining a healthy profit margin will help to ensure the financial success of a business, which will improve its ability to obtain loans. It is calculated by finding the profit as a percentage of the revenue. Profit Margin = 100 ⋅ Profit Revenue = 100 ⋅ ( Sales − Total Expenses ) Revenue {\displaystyle {\text{Profit Margin}}={100\cdot {\text{Profit}} \over {\text{Revenue}}}={{100\cdot ({\text{Sales}}-{\text{Total Expenses}})} \over {\text{Revenue}}}} For example, if a company reports that it achieved a 35% profit margin during the last quarter, it means that it netted $0.35 from each dollar of sales generated. Profit margins are generally distinct from rate of return. Profit margins can include risk premiums and monopoly profits.