Profit margin


After all expenses have been removed, the profit margin is the percentage of sales retained by a company. The profit margin of a company might reveal how successfully it manages its entire finances. When the profit margin is very low, it indicates that the company has to reduce its expenses by implementing a more stringent budget.

Profit margin is one of the most crucial indications of a company's financial health. Creditors want to know these numbers so they can make sure a company is successful enough to pay back its loans, while investors want to know if the company is profitable enough to pay dividends.

The profit margin is calculated by subtracting sales from total expenses, then dividing by sales. The formula for the computation is as follows: (Sales - Total expenses) ÷ Sales