The Profit Margin is one of the most commonly mentioned performance measures used; and for good reason. It tells us how much net profit is left from our sales after all expenses are deducted. That is, the percentage of sales revenue ending up in profit.
It is a key ratio because a primary financial performance measure of a business is profit (it’s the bottom line!). And while profit can’t be generated without sales revenue (selling your product/service is why you’re in business!), expenses are another fact of business life and keeping these expenses as low as possible leads to profit being as great as possible (within your sales range)
So if you’re in business or you’re an investor, you need to know how much revenue that is generated actually ends up on the bottom line. It is a good indicator of both revenue generation combined with cost control.
A Profit Margin of 32%, for example, means that 32% of your sales revenue ends up as net profit and the other 68% were expensed over the period.
Profit Margin Formula
Net Income / Sales Revenue
Profit Margin Calculator
The calculator asks for:
Net Income, which is found on the income statement.
Sales Revenue, which is also found on the income statement.
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