Profit Margin

A profit margin indicates how much profit a company makes on total sales, and what portion of its revenues which are actually profit.

The profit margin of a company can be found by dividing a company’s post-tax net profit over a financial year by its total sales over the same financial year.

Example:

An automobile manufacturer makes a net profit of 6 billion francs over a financial year. In the same year, the company’s total sales come to 35 billion francs. So the company’s profit margin is 17.14%, meaning that 17.14% of the company’s total sales revenues is actual profit.

See also: P/E Ratio

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Daniel Dreier is editor and personal finance expert at moneyland.ch.

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