Profit Margin

Profit margin shows how efficiently a company generates profit for every one dollar of sales. Profit margin is expressed as a percentage. It is calculated by dividing net profit by sales or revenue. For example, a company that has $500,000 in sales and $100,000 in net profits has a profit margin of 100,000 / 500,000 = 20%. Profit margin allows for comparing the efficiency of profit generation between companies within the same industry. Trying to use profit margin to compare companies within different industries will be fairly useless since profit margin does not account for industry differences.

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