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Finance Dictionary and Glossary of Investment Terms
Indicator of profitability. The ratio of earnings available to stockholders to net sales. Determined by dividing net income by revenue for the same 12-month period. Result is shown as a percentage. Also known as net profit margin.
Net profit after taxes divided by sales for a given 12-month period, expressed as a percentage.
Subtract cost of goods sold from net sales, and divide the result by net sales. Basically, profit margin tells you the rate of profit generated on actual business operations, leaving aside capital investment, depreciation and other costs that don''t directly and immediately relate to the cost of goods. A firm with a razor-thin profit margin generally is less attractive to investors than one with a big profit margin, but like all such measures, this one varies widely by industry. Profit margins for successful software firms and movie studios can be quite high, while profit margins for supermarket chains tend to be low.
An indicator of profitability, It is calculated as net earnings after taxes divided by revenues. Profit margin is usually displayed as a percentage.