Definition – What is Profit Margin?
Profit margin is the net income of the firm in relation to the sales.
Formula – How to calculate Profit Margin
Profit Margin = (Net Income / Net Sales) x 100%
A company has net income of $2,100 and net sales of $14,000.
Profit Margin = ($2,100 / $14,000) x 100% = 0.15 x 100% = 15.00%
Therefore, this company’s profit margin is 15.00%.
Sources and more resources
- Houston Chronicle – The difference between profit and profit margin – A short newspaper article outlining how profit and profit margin are different.
- Wikipedia – Profit Margin – Wikipedia’s entry on profit margin. Includes a sample calculation.
- Shopify Encyclopaedia – Profit Margin – A simple explanation of profit margin.
- Investopedia – Profit Margin & What is the formula for calculating profit margins? – Some sample calculations for how to calculate profit margin.