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PROFIT MARGIN
       
 
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PROFIT MARGIN

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PROFIT MARGIN
Indicator of profitability that is calculated by dividing the Net Income by the revenue for the same twelve month period, and the profit Margin is represented as a percentage.
    
A ratio of profitability calculated as Net Income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in Earnings.
    
Profit Margin is very useful when comparing companies in similar industries. A higher profit Margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit Margin is displayed as a percentage; a 20% profit Margin, for example, means the company has a Net Income of $0.20 for each dollar of sales.
    
Increased Earnings are good, but an increase does not mean that the profit Margin of a company is improving. For instance, if a company has costs that have increased at a greater rate than sales, it leads to a lower profit Margin. This is an indication that costs need to be under better control.
    
Imagine a company has a Net Income of $10 million from sales of $100 million, giving it a profit Margin of 10% ($10 million/$100 million). If in the next year Net Income rises to $15 million on sales of $200 million, the company's profit Margin would fall to 7.5%. So while the company increased its Net Income, it has done so with diminishing profit margins.
Posted by  Privatebanking.com
 
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