Saturday, January 5, 2008

Profit Margin

Companies are in the business of making money.
While that fact is true, there is more that goes into it. Companies are looking to make more money than the cost expended in making it. After a firm sells a product or service it receives revenue. That revenue is not profit. Prior to considering it as profit, costs and expenses need to be subtracted along with things like taxes. That value at the bottom would be considered your "net income".

Simply subtracting the income from the revenue will give you the profit. However, this is not the profit margin. The profit margin is a ratio of net income to net sales revenue.This is a measure of telling how much money a company made in profit for every dollar the company made in sales. This can be useful for investors and analysts, it can be more useful tool for the decision makers inside the company. It can be a way for them to see what products or services are costing too much and if cost controls are working.

Hopefully this post has been helpful for you. Feel free to leave me a comment.
-----Sincerely, Trevor Stasik.

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