Profit Margin



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Profit Margin is calculated as net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings

Net Profit
= --------------
Turnover


Thus if a company sells $100,000 in cargo and has earnings of $12,000, its profit margin is $12,000/ $100,000*100 =12%


A higher profit margin indicates a more gainful company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 12% profit margin, for example, means the company has a net income of $0.12 for each dollar of sales.

Looking at the income of a company often doesn't tell the complete story. Increased earnings are good, but an increase does not indicate that the profit margin of a company is improving,

For example company ABC has a net income of 100 crore from sales of 1000 crore, giving it a profit margin of 10% (100 crore/1000 crore). If in the next year net income rises to 150 crore on sales of 2000 crore , giving it a profit margin of 7.5% the company's profit margin would fall to 7.5%, Note; for free NSE BSE indian stock trading calls and tips see my home page.



1 comment:

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