Short definition: Profit margin is a financial ratio that calculates the percentage of sales that a company keeps as profit after deducting all expenses.
Explanation: It is a measure of a company’s profitability and efficiency. There are several types of profit margins, including gross profit margin, operating profit margin, and net profit margin, each representing profit at different stages of the income statement.
Example: If a company has sales of $100,000 and expenses of $70,000, its net profit margin would be 30% (($100,000 – $70,000) / $100,000).
Additional information (optional): Profit margins can vary significantly across industries and companies. Factors that can affect profit margins include pricing strategies, cost control, competition, and the overall economic environment.