profitmargin

Profit margin is a financial metric that indicates what percentage of revenue remains as profit after costs are deducted. It is commonly reported as net profit margin, but other margins such as gross margin and operating margin are used to assess profitability at different stages of the income statement.

Formulas: net profit margin = net income / revenue; gross margin = (revenue − cost of goods sold) / revenue; operating margin = operating income / revenue. Margins are typically expressed as percentages. Some firms also report EBITDA margin, a non-GAAP measure used for comparisons across firms with different capital structures.

Example: a company has revenue 100; cost of goods sold 60; operating expenses 25; taxes 5. Net income is 10, so net profit margin is 10%. Gross margin is 40% and operating margin is 15%.

Use and interpretation: higher margins indicate greater profitability per dollar of revenue, reflecting pricing power, cost control, and product mix. Margins vary widely by industry and business model and should be compared with peers and historical trends. Limitations: margins can be affected by accounting practices, one-off items, and non-operating factors; they do not convey cash flow or leverage and may be misleading if viewed in isolation. They are most informative when analyzed alongside other metrics like cash flow, return on assets, and revenue growth.