All Topics  
Profit margin

 

 
   Email Print
   Bookmark   Link
 

 

Profit margin
 
 
  Topics Profit margin Topic Home

Profit margin, net margin, net profit margin or net profit ratio all refer to a measure of profitability. It is calculated by finding the net profit
Net profit

In business and finance accountancy, net profit is equal to the gross profit minus Overhead minus interest payable plus/minus one off items for a given time period ....
 as a percentage of the revenue
Revenue

In business, revenue or revenues is income that a corporation receives from its normal business activities, usually from the sale of product to customers....
.

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.






Discussion
Ask a question about 'Profit margin'
Start a new discussion about 'Profit margin'
Answer questions from other users
Full Discussion Forum



Encyclopedia


Profit margin, net margin, net profit margin or net profit ratio all refer to a measure of profitability. It is calculated by finding the net profit
Net profit

In business and finance accountancy, net profit is equal to the gross profit minus Overhead minus interest payable plus/minus one off items for a given time period ....
 as a percentage of the revenue
Revenue

In business, revenue or revenues is income that a corporation receives from its normal business activities, usually from the sale of product to customers....
.

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. A low profit margin indicates a low margin of safety: higher risk that a decline in sales will erase profits and result in a net loss.

For example, a company produces a loaf of bread and sells it for €10. It cost the company €6 to produce the bread and it also had to pay an additional €2 in tax
Tax

To tax is to impose a financial charge or other levy upon an individual or Legal person by a state or the functional equivalent of a state.Taxes are also imposed by many subnational entity....
.

That makes the company's net income €2 (10 minus 6, before tax, then minus 2 for tax). Since its revenue
Revenue

In business, revenue or revenues is income that a corporation receives from its normal business activities, usually from the sale of product to customers....
 is €10, 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 the profit margin to vary among different companies.

See also

  • Gross profit margin
    Gross profit margin

    Gross profit margin is a financial ratio used to assess the profitability of a firm's core activities, excluding fixed costs.The general calculation is:...


External links