A calculation for comparing the profit of different products you sell. Calculate it by dividing the profit by the amount you charge (price) for your product. For example, if your profit on cotton candy that you sell for $1.50 each is $1.20, your profit margin is 80% ($1.20 ¸ $1.50 = 0.8, or 80%). If your profit on Sno-Kones that you sell for $1.00 each is $0.85, your profit margin is 85% ($1.00 ¸ $0.85 = $.85, or 85%).
The difference between the selling price and costs. A large amount of factors influences the profit margin both inside and outside the company. It is necessary to calculate a reasonable profit margin in order to stay in business.
The percentage difference between the costs of a product and the price you sell it for. Eg. if a product costs you $10 to buy and you sell it for $20, then you have a 100% profit margin. This is also known as your 'mark-up'.
Calculated by dividing the net income by revenues. This calculation indicates what portion of sales contribute to the income of a company. This is often used when comparing companies within an industry. A high profit margin indicates a more profitable company. A smaller profit margin reflects a pricing strategy and/or the impact of competition within the industry.
the relationship between net sales and gross profits. It indicates whether the company can cover operating expenses and yield a profit. Gross profit margins are obtained by dividing gross income by net sales.
A measure of a company's profitability, cost structure and efficiency, calculated by dividing earnings or cash flow by revenue. There are four basic types of profit margin: gross, operating, pre-tax and net. Net margin is the one investors pay the most attention to. It shows a company's profitability after all costs, expenses and taxes have been paid. The net margin is calculated by dividing earnings by revenue and then multiplying by 100. Margins are particularly helpful since they can be used both to compare profitability among many companies and to look for financial trouble at a single outfit.
The ratio of profit to sales. Several profit margin ratios are used. The two most commonly used are gross profit margin (gross profit divided by sales) and net profit margin (net profit divided by sales).