Editing Profit margin (section)

{{short description|Ratio between turnover and profit}}
{{Competition law}}
'''Profit margin''' is a financial ratio that measures the percentage of profit earned by a company in relation to its revenue. Expressed as a percentage, it indicates how much profit the company makes for every dollar of revenue generated. Profit margin is important because this percentage provides a comprehensive picture of the operating efficiency of a business or an industry. All margin changes provide useful indicators for assessing growth potential, investment viability and the financial stability of a company relative to its competitors. Maintaining a healthy profit margin will help to ensure the financial success of a business, which will improve its ability to obtain loans.

It is calculated by finding the [[net profit|profit]] as a percentage of the [[revenue]].<ref name=":0">{{Cite web |title=profit margin Definition |url=https://www.thebalance.com/profit-margin-types-calculation-3305879 |access-date=December 17, 2009 |work=Investor Words |publisher=InvestorGuide.com}}</ref>

<math display="block">\text{Profit Margin} = {100 \cdot \text{Profit}\over\text{Revenue}} = {{100 \cdot (\text{Sales} - \text{Total Expenses})}\over\text{Revenue}}</math>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.

Profit margins are generally distinct from [[rate of return]].<ref name="j871"/> Profit margins can include [[risk premium]]s.<ref name="j871">{{cite journal | last=Fisher | first=Franklin M. | last2=McGowan | first2=John J. | title=On the Misuse of Accounting Rates of Return to Infer Monopoly Profits | journal=The American Economic Review | publisher=American Economic Association | volume=73 | issue=1 | year=1983 | issn=00028282 | jstor=1803928 | pages=82–97 | url=http://www.jstor.org/stable/1803928 | access-date=17 August 2024}}</ref>