Calculate profit margin for businesses, understand net profit ratio, and make informed financial decisions
Profit margin is a key financial metric that indicates the percentage of revenue that remains as profit after deducting the cost of goods sold (COGS). It is a crucial indicator of a company's financial health and pricing strategy. A higher profit margin suggests a more profitable business, while a lower margin may indicate inefficiencies or intense competition.
The profit margin formula is: Profit Margin = (Net Profit / Revenue) * 100. For instance, if a business has a revenue of $100,000 and a net profit of $20,000, its profit margin is 20%. This means that for every dollar sold, the business retains $0.20 as profit.
According to Wikipedia, profit margin is an important metric for businesses to evaluate their pricing strategies and cost management. The Investopedia article on profit margin provides further insights into its calculation and significance.
| Revenue | Net Profit | Profit Margin |
|---|---|---|
| $100,000 | $20,000 | 20% |
| $500,000 | $75,000 | 15% |