What is a 'Profit Margin'?

Profit margin is a profitability ratios calculated as net income divided by revenue, or net profits divided by sales.

Sharper Insight. Smarter Investing. Manage Preferences TERM OF THE DAY Profit Margin Profit margin is a profitability ratio calculated as net income divided by revenue, or net profits divided by sales. Net income or net profit may be determined by subtracting all of a company's expenses, including operating costs, material costs (including raw materials) and tax costs, from its total revenue. Profit margins are expressed as a percentage and, in effect, measure how much out of every dollar of sales a company actually keeps in earnings. A 20% profit margin, then, means the company has a net income of $0.20 for each dollar of total revenue earned. Breaking it Down: Rarely can a company's individual numbers (like revenue or expenditures) indicate much about the company's... Read More Related to "Profit Margin" A Look At Corporate Profit Margins Take a deeper look at a company's profitability with the help of profit margin ratios. Read More What's the difference between profit margin and operating margin? Learn the differences between a company's gross profit margin, net profit margin and operating margin, and what each profitability measure is useful for. Read More What's the difference between profit margin and markup? Learn to differentiate between profit margin and markup, two accounting terms that are often used interchangeably but actually mean different things. Read More Related Definitions Contribution Margin A cost accounting concept that allows a company to determine the profitability of individual products. Read More Net Income - NI A company's total earnings (or profit). Net income is calculated by taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes and other expenses. Read More Adjusted Gross Margin Adjusted gross margin is a calculation used to determine the profitability of a product, product line or company. Read More Cost of Goods Sold - COGS Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company. Read More You are currently subscribed as: mondemand.forex@blogger.com Unsubscribe  |  Manage Subscriptions Investopedia, LLC, A Division of IAC. 114 West 41st St, floor 8, New York NY 10036 Copyright © 2018, Investopedia, LLC. All Rights Reserved Follow Us: