Editing Profit margin (section)

==Uses of profit margin in business==
{{morerefs|section|date=October 2024}}
Profit margins can be used to assess a company's financial performance over time. By comparing profit margins over time, investors and analysts can assess whether a company's profitability is improving or deteriorating. This information can be used to make informed investment decisions.

Profit margins are a useful tool for comparing the profitability of different companies in the same industry. By comparing the profitability of similar companies, investors can determine which companies are more profitable and therefore potentially more attractive investment opportunities. Low profit margins can act as a warning to a company's owners and [[company director|directors]] that the company might be in distress or the goods are being sold too cheap: "whatever the reason, low margins could signal trouble in the long run".<ref>{{OGL-attribution|[[The Insolvency Service]], [https://www.gov.uk/guidance/director-information-hub-signs-of-company-distress Director information hub: Signs of company distress], published on 7 July 2023, accessed on 15 October 2024}}</ref>

Profit margins can also be used to assess a company's [[Pricing strategies|pricing strategy]]. By analysing the profitability of different products and services, companies can determine which products or services are most profitable and adjust their pricing accordingly. This can help companies maximise profitability and remain competitive in the marketplace.

Margins can also be used to identify areas of a company's operations that may be inefficient or not cost effective. By analysing the profitability of different product lines, companies can identify areas where costs are too high in relation to the profits generated. This information can then be used to optimise operations and reduce costs.

In some cases, companies may agree to cover profit margin shortfalls as part of a [[business-to-business]] supply contract, such as an agreement between a [[retail]]er and a [[vendor|supplier]]. However, in the UK, a [[Groceries Code Adjudicator]] report published in 2015 found that requirements to cover margin shortfalls imposed on suppliers by [[supermarket chain]]s, where they had not been contractual agreed, were seen as a "relatively common" problem among suppliers.<ref>Groceries Code Adjudicator, [https://assets.publishing.service.gov.uk/media/5a818615ed915d74e33feac8/GCA_follow_up_survey.pdfGroceries Code Adjudicator Follow-up survey], undertaken by YouGov, pages 4, 10-11, published in January 2015, accessed on 15 October 2024</ref>