profit margin
amount by which revenues exceed expenses the amount by which income is greater than expenditure. The profit margin of an individual product is the sale price minus the cost of production and associated costs such as distribution and advertising. The net profit margin or return on sales is net income after taxes divided by total sales. On a larger scale, the profit margin is an accounting ratio of company income compared with sales. The profit margin ratio can be used to compare the efficiency and profitability of a company over a number of years, or to compare different companies. The gross profit margin or operating margin of a company is its operating, or gross, profit divided by total sales. The level of profit reported is also influenced by the extent of the application of accounting conventions, and by the method of product costing used, for example, marginal costing or absorption costing.
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