Profit_margin

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.

$\backslash mathrm\{Profit\backslash \; Margin\}\; =\; \backslash frac\{\backslash mathrm\{Net\backslash \; Income\}\}\{\backslash mathrm\{Net\backslash \; Sales\backslash \; Revenue\}\}$

Margin is mostly used for internal comparison. It is difficult to compare accurately the net profit ratio for different entities. Individual businesses\' operating and financing arrangements vary so much that entities are bound to have different levels of expenditure, 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. It costs 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%.

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 profit margin to vary among different companies.

See also

• Business margin
• Operating margin
• Profits
• Gross profit margin
• Markup

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.

This article is licensed under the GNU Free Documentation License. It uses material from Wikipedia