Investor Glossary-profit marginInvestor Glossary-profit marginInvestor Glossary-profit marginInvestor Glossary-profit marginInsightful stock market charts - Click here
investor
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Profit Margin

The HTML to link to this page
 

Profit margin is shorthand for net profit margin, or earnings divided by sales. Thus if a company sells $100,000 in merchandise and has earnings of $12,000, its profit margin is 12%. As a general rule, an improving (ie, a higher) profit margin is a favorable sign. But note that the profit margin is only one element in measuring a company's ability to generate profits. For example, a company may maintain a high profit margin, but only by keeping prices high, thus reducing sales. By lowering prices and sacrificing some profit margin, the company may be able to increase sales sufficiently to more than offset the reduced profit margin. On the other hand, if a company can maintain the same level of sales while cutting cost of goods sold, SG&A expense, or taxes, it can increase its profit margin and raise total earnings as well. Because a gross profit margin, operating profit margin, and pretax profit margin are commonly computed for a company, it's better to avoid ambiguity and not use "profit margin" when "net profit margin" is meant.



Rate this profit margin definition...

Learn about investing with the Investor Glossary Term of the Day


Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.


Popular Terms: irrevocable trust, minority interest, Zero Cost Collar, 144a, open position, EBITDA, 1035 exchange, annual return, FICO score, phantom income, in escrow, diluted share, deferred revenue, real GDP, deferred tax, current ratio, FTSE, 1031 exchange, dividends payable, margin rate, stock market close, limit order, VIX, retained earnings, per diem, debt service coverage, class C shares, stock split, average price per share, ex-dividend, command economy, ex-dividend date, reverse mortgage, liquidity ratio, option premium, risk management, quality assurance, 401a, required rate of return, cancelled check, implied volatility, covered put, LIBOR, Key Rate Duration, labor relations, wholly-owned subsidiary, APR, balance sheet, inflation


Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Investor Glossary | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2016 Investor Glossary - All rights reserved - Terms of Use