1. What is Profit Margin?

Profit Margin is a financial metric that shows what percentage of revenue has turned into profit. It's one of the most important indicators of a company's financial health and efficiency.

2. How Does the Calculator Work?

The calculator uses the profit margin formula:

Where:

• Net Profit — Total revenue minus all expenses
• Revenue — Total income from sales before expenses

Explanation: The formula calculates what percentage of each dollar earned is actual profit after accounting for all costs.

3. Importance of Profit Margin

Details: Profit margin helps businesses assess pricing strategies, cost control, and overall financial performance. It allows comparison between companies of different sizes and across industries.

4. Using the Calculator

Tips: Enter both net profit and revenue in dollars. Revenue must be greater than zero for calculation. The result shows what percentage of revenue is actual profit.

5. Frequently Asked Questions (FAQ)

Q1: What's a good profit margin?
A: Varies by industry. Generally, 10% is average, 20% is good, and 5% is low. Service businesses often have higher margins than retailers.

Q2: What's the difference between gross and net profit margin?
A: Gross margin considers only cost of goods sold, while net margin includes all expenses (operating costs, taxes, interest, etc.).

Q3: Can profit margin be over 100%?
A: Yes, if net profit exceeds revenue (unusual but possible with accounting adjustments or one-time gains).

Q4: Why is profit margin important for investors?
A: It shows how efficiently a company converts sales into profits and indicates pricing power and cost management.

Q5: How often should I calculate profit margin?
A: Businesses should track it monthly. Investors should review it quarterly with financial statements.