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Profit Margin

Updated: Apr 26

Profit margin is a common measure of the degree to which a company or a particular business activity makes money. Expressed as a percentage, it represents the portion of a company’s sales revenue that it gets to keep as a profit, after subtracting all of its costs. For example, if a company reports that it achieved a 35% profit margin during the last quarter, it means that it netted $0.35 from each dollar of sales generated.


Businesses and individuals across the globe perform economic activities with the aim of making a profit. Numbers like $X million in gross sales or $Y million in earnings are useful but don't address a business's profitability and comparative performance. Several different quantitative measures are used to compute the gains (or losses) a business generates, which makes it easier to assess the performance of a business over different time periods or compare it against competitors. These measures are called profit margins.


While privately owned businesses, like local shops, may compute profit margins at their own desired frequency (like weekly or monthly), large businesses, such as publicly traded companies, are required to report them in accordance with the standard reporting timeframes (typically quarterly and/or annually). Businesses that are running on borrowed money may be required to compute and report their profit margins to lenders (like a bank) on a monthly basis.


Source: Investopedia, Profit Margin: Definition, Types, Uses in Business and Investing, accessed 25 December 2023, <https://www.investopedia.com/terms/p/profitmargin.asp

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