Profit margin is a measure of profitability. It is calculated using a formula and written as a percentage or a number.

Profit margin = Net income before tax and interest / Revenue

For example, suppose a company produces bread and sells it for 10 units of currency. It costs the company 6 units of currency to produce the bread and it also had to pay an additional 2 unit of currency in tax.

That makes the company's net income 4 units of currency (10 - 6, before tax) and its revenue 10 units of currency. The profit margin would be (4 / 10) or 40%.

Profit margin is an indicator of a company's pricing policies and its ability to control costs. Differences in competitive strategy and product mix cause profit margin to vary among different companies.

See also

• Business margin
• Operating margin
• Profits
• Margin squeeze

External links

• Calculating Profit Margin - Why It's important, and how to use Excel to calculate it for you.
• Yahoo! Finance - Stock Screener - By profit margin

Profit | Financial ratios