Profit Margin
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Profit Margin
The portion of a company's total sales that is retained as profit, often used to measure a company's financial strength.
Importance of Profit Margin
- Profit margin helps understand whether a business is operating well, and investors often use it to compare companies within the same industry.
- Companies with higher profit margins tend to have higher profits, and their stock prices usually rise faster than those of competitors with lower profit margins.
- Identifying and addressing excessive costs.
- Reconsidering their product or service mix.
- Tracking revenue patterns (e.g., seasonal increases or decreases).
- Helping them obtain loans or attract investors.
Variation in Profit Margins Across Industries
High Profit: Software, High-Tech, Luxury Retailers
These industries often have minimal physical inventory or stores.
High Profit: Software, High-Tech, Luxury Retailers
These industries often have minimal physical inventory or stores.
Alternatively, they can command higher prices for premium products.
Low Profit: Food Retailers, Airlines, Low-End Retailers
These industries typically have high operating expenses and inventory costs.
Alternatively, they may only be able to charge lower prices for their products.
27 Feb 2024
