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profit margin |
Also found in: Dictionary/thesaurus, Wikipedia, Hutchinson | 0.01 sec. |
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Profit margin Indicator of profitability. The ratio of earnings available to stockholders to net sales. Determined by dividing net income by revenue for the same 12-month period. Result is shown as a percentage. Also known as net profit margin.
Profit margin. A company's profit margin is derived by dividing its net earnings, after taxes, by its gross earnings minus certain expenses. Profit margin is a way of measuring how well a company is doing, regardless of size. For example, a $50 million company with net earnings of $10 million and a $5 billion company with net earnings of $1 billion both have profit margins of 20%. Profit margins can vary greatly from one industry to another, so it can be difficult to make valid comparisons among companies unless they are in the same sector of the economy. profit margin The difference between the cost of a unit (house,subdivision parcel,condominium) including a pro rata share of all overhead and other such expenses, as compared to the sales price for that unit. Profit Margin What Does Profit Margin Mean? A ratio of profitability calculated as net income divided by revenues or net profits divided by sales. It measures the dollar amount of the sales that a company actually retains in earnings. Profit margin is very useful in comparing companies in similar industries. A higher profit margin indicates a more profitable company. Profit margin is displayed as a percentage; a 20% profit margin, for example, means that the company has a net income of $0.20 for each dollar of sales. Investopedia explains Profit Margin A company's earnings do not always tell the entire story. Increased earnings are good, but an increase does not mean that the profit margin of a company is improving. For instance, if a company's costs are rising at a faster pace than are sales, this will lead to a lower profit margin, indicating that the company should rein in its costs. Consider a company that has net income of $10 million from sales of $100 million, giving it a profit margin of 10% ($10 million/$100 million). If in the next year net income rises to $15 million on sales of $200 million, the company's profit margin will fall to 7.5%. Although the company has increased its net income, it has done so with diminishing profit margins. Related Terms: How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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