Profit margin, Net Margin or Net Profit Ratio all refer to a measure of profitability. It is calculated using a formula and written as a percentage or a number. In Mathematics, a percentage is a way of expressing a number as a Fraction of 100 ( per cent meaning "per hundred"
The profit margin is mostly used for internal comparison. It is difficult to accurately compare the net profit ratio for different entities. Individual businesses' operating and financing arrangements vary so much that different entities are bound to have different levels of expenditure, so that comparison of one with another can have little meaning.
For example, a company produces a loaf of bread and sells it for 10 units of currency. A currency is a unit of exchange, facilitating the transfer of Goods and/or services It is one form of Money, where money is It cost the company 6 units of currency to produce the bread and it also had to pay an additional 2 units of currency in tax.
That makes the company's net income 2 units of currency (10 - 6, before tax, then minus 2 for tax). Since its revenue is 10 units of currency, the profit margin would be (2 / 10) or 20%. In business revenue or revenues is Income that a company receives from its normal business activities usually from the sale of goods and services
Profit margin is an indicator of a company's pricing policies and its ability to control costs. Differences in competitive strategy and product mix cause the profit margin to vary among different companies.
See also
External links
- Yahoo! Finance - Stock Screener - By profit margin
- Stock Screener - Highest Profit Margin on MSN Money
- Calculating Profit Margin with Excel - Download an Excel spreadsheet that calculates profit margin for you. In Finance, a financial ratio or accounting ratio is a ratio of selected values on an enterprise's Financial statements There are many standard ratios used In Business, operating margin, Operating Income Margin, Operating profit margin or Return on sales (ROS is the ratio of Operating income Gross profit margin is a Financial ratio used to assess the Profitability of a firm's Core activities, excluding Fixed costs. Markup is a term used in Marketing to indicate how much the price of a product is above the cost of producing and distributing the product
Dictionary
profit margin
-noun
- The ratio of net income to net sales of a company expressed as a percentage.
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