profit margin

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profit margin

A company's profit margin is shown as a simple pie chart in a business presentation.

Definition
  1. Noun:
    • A financial ratio: The "profit margin" is a key financial metric. It is calculated by dividing a company's gross profit by its net sales (or revenue). The result, often expressed as a percentage, shows how much profit a company makes for each dollar of sales after accounting for the direct costs of producing its goods or services.
Usage Examples
  • Noun:
    • The company's profit margin increased to 25% this quarter, indicating improved efficiency.
    • A low profit margin in the retail sector means they must sell a high volume of goods.
    • Investors always scrutinize the profit margin to assess a business's health.
Advanced Usage
  • "To maintain a healthy profit margin": To keep the ratio of profit to sales at a level that ensures business sustainability.
    • Despite rising costs, the manufacturer struggled to maintain a healthy profit margin.
  • "To squeeze/erode profit margins": Describes when external pressures (like competition or higher costs) cause the profit percentage to decrease.
    • Intense price competition is squeezing profit margins across the industry.
Variants and Related Words
  • Gross Profit Margin (noun): Specifically refers to the ratio of gross profit to net sales. This is the most common calculation for the term "profit margin."
  • Net Profit Margin (noun): A different, more comprehensive ratio calculated by dividing net income (profit after all expenses) by net sales.
  • Margin (noun): In finance, often used as a shorter, informal synonym for "profit margin."
    • We operate on very thin margins.
Synonyms
  • Markup (noun): While related, this typically refers to the amount added to the cost price to determine the selling price, not a ratio.
  • Return on Sales (noun): A similar profitability ratio.
Related Phrases
  • "Bottom line" (noun, idiomatic): Refers to net profit or the final result. While related to overall profitability, it is not a direct synonym for the ratio "profit margin."
    • What really matters is the bottom line.
profit margin

A company's profit margin is shown as a simple pie chart in a business presentation.

Noun
  1. the ratio gross profits divided by net sales

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