Profit margin - Definition and Overview

Profit margin is a measure of profitability. It's calculated as

net income / revenue = profit margin

and expressed as a percentage.

For example: Suppose a company produces bread and sells it for 5 units of currency. It costs the company 3 units of currency to produce the bread and it also had to pay an additional 1 unit of currency in tax.

That makes the company's net income 1 unit of currency (5 - (3 + 1)) and its revenue 5 units of currency.

The profit margin therefore is (1 / 5) or 20%

Example Usage of Profit