Finance Dictionary
Profit Margin
Definition
The amount by which revenue from sales exceeds costs in a business.
Deep Dive
Profit margin is a financial ratio that measures the percentage of revenue that a company retains as profit after accounting for all expenses. It is a crucial indicator of a company's financial health and its ability to convert sales into actual profit. There are several types of profit margins, including gross profit margin, operating profit margin, and net profit margin, each providing a different perspective on a company's profitability at various stages of its operations.
Examples & Use Cases
- 1A software company with a 25% net profit margin
- 2A grocery store operating on a slim 2% gross profit margin
- 3An e-commerce business improving its operating profit margin by negotiating better shipping rates
Related Terms
RevenueCost of Goods Sold (COGS)Net Income