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 as a percentage of the revenue.
- where Net Income = Revenue - Cost
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, or a negative margin.
Profit margin is an indicator of a company's pricing strategies and how well it controls costs. Differences in competitive strategy and product mix cause the profit margin to vary among different companies.
Read more about Profit Margin: Confusion, Benefits of Profit Margin
Famous quotes containing the words profit and/or margin:
“Go bind thou up young dangling apricots
Which, like unruly children, make their sire
Stoop with oppression of their prodigal weight.
Give some supportance to the bending twigs.
Go thou, and like an executioner
Cut off the heads of too-fast-growing sprays
That look too lofty in our commonwealth.
All must be even in our government.
You thus employed, I will go root away
The noisome weeds which without profit suck
The soil’s fertility from wholesome flowers.”
—William Shakespeare (1564–1616)
“I love a broad margin to my life.”
—Henry David Thoreau (1817–1862)