Financial Terms / profit margin

Understanding Profit Margin Ratios

Profit margin is a key indicator of a company's financial health, calculated by dividing its profits by its total revenue, and can vary widely by industry.


Profit Margin = (Net Profit / Total Revenue) * 100

How do I calculate the profit margin?

Profit margin is a key metric for evaluating the financial health of a business. It is an important indicator of a company’s efficiency and profitability and is calculated by dividing net profit by total revenue. To calculate profit margin, use the formula: Profit Margin = (Net Profit / Total Revenue) * 100.

For small businesses and startups, understanding and tracking profit margin is essential to success. It can provide valuable insight into how well operations are running, and it can help inform decisions about pricing, inventory management, and other operational costs. For businesses that use software such as Sourcetable, tracking profit margin can be easy and straightforward.

What is profit margin?

Profit margin is one of the simplest financial ratios. It is calculated by dividing profit by revenue.

What does profit margin measure?

Profit margin measures the profitability of a business by comparing its total revenue to its total expenses.

Key Points

How do I calculate profit margin?
Profit Margin = (Net Profit / Total Revenue) * 100
Profit Margin is a Common Measure of How Much a Company Makes Money
Profit margin is a measure of how much a company is making, expressed as a percentage. It is used by lenders, investors, and businesses to assess the financial health of a company.
Profit Margin is Used to Determine a Company’s Skill
Profit margin can give an indication of a company's skill level. Analysts and investors use it to determine how well the company is managing its finances, and how much potential for growth it has.
Profit Margin is Used by Investors and Analysts to Assess a Company’s Financial Health
By looking at the profit margin, investors and analysts can get a good idea of how healthy a company's finances are. This can help them determine whether a company is a good investment or not.

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