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.

Noun

1. the ratio gross profits divided by net sales