Profit margin turns a profit figure into a percentage of sales so you can compare businesses of different sizes. Gross, operating and net margins each stop at a different line of the income statement. A firm can grow revenue quickly and still have a weak margin if costs run ahead of sales.
Key takeaways
- Margin answers: of each birr of sales, how much becomes profit?
- Always note which profit line the margin uses (gross, operating or net).
- Industry norms matter; a supermarket and a software firm are not comparable.
- Falling margins can warn of price pressure or rising costs before profit turns negative.