BNET Business Dictionary
Business Definition for: Profit Margin
- the amount by which income exceeds 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. 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 net profit margin or return on sales is net income after taxes divided by total sales.
- sales less cost of sales, expressed either as a value or as a percentage of sales value. The profit margin may be calculated at different stages, hence the terms gross profit margin and net profit margin. 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 or absorption costing.
Wiktionary Definition for: Profit Margin
- The ratio of profit to cash flow of a company expressed as a percentage.
Additional Resources
- Profitability Ratios
- This article describes set of ratios to assess the profitability of your business and changes in its profit performance. These ratios are probably the most important indicators of your business's financial success. Investors will be interested in these ratios insofar as they demonstrate the performance and growth potential of the...
- White papers 2003-01-01
- No Margin - No Mission: Developing a Target Minimum Operating Margin
- The challenging operating environment has left many not-for-profit hospitals and hospital systems with negative operating margins. In this climate, not-for-profit organizations are searching for credible financial and operating targets that guide organizational action plans ranging from the more severe "restructuring" options to the less contentious "optimization" actions. Shattuck Hammond Partners...
- White papers 2001-06-01
- Make Better Decisions With Project Profit Analysis Management
- Project profit analysis management is a process of periodically reviewing, usually weekly, the changes in each project's profit margin. Knowing how much and why the profit margins change allows management to preview the financial finish line throughout the project. It gives management a heads up and allows more time to...
- White papers 2005-01-01
- Margin Notes: The View From the top
- According to the report credit available in the equity markets continued to surge. The increase in margin debt heightened concerns over leverage and fears of speculative excesses & boosted both interest in the issue & support for an increase in margin requirements. The Federal Reserve has indicated that it is...
- White papers 2000-04-18
- Developing a Pricing Strategy II
- A margin is the ratio of profit to revenue for a given product. Margins set the "floor" for pricing. To measure a margin effectively, one needs to use the net margin includes fixed and incremental costs. While margins are important in determining the floor in pricing a product or service,...
- White papers 2000-11-16
- The Value Chain
- To better understand the activities, through which a firm develops a competitive advantage and creates shareholder value, it is useful to separate the business system into a series of value-generating activities referred to as value chain. Michael Porter introduced a generic value chain model that comprises a sequence of activities...
- White papers 2003-01-01
- Twelve Ways To Make Your Advertising Produce More Results
- If you place an advertisement, and it generates more profit than the ad costs, consider it a success. The next step is to widen the margin between advertising cost and results. You can improve that margin by small increments through each of these Twelve Ways To Make Your Advertising Produce...
- White papers 2002-01-01
- Engineering And Construction
- Engineering and construction market, protecting ones profit margin is simply harder to achieve. Competition keeps margins thin and projects become more complex. Projects that seemed to be running smoothly can suddenly experience profit fade in the final few months. Late starts and unbalanced backlog can leave one overstaffed or short-handed....
- White papers 2005-10-19
- Investing with Borrowed Funds: No "Margin" for Error
- Investor purchases of securities "on margin" have grown dramatically in recent months. As NASD recently reported, the amount of debt taken on to buy securities reached $174 billion in July, an increase of over 25% since the beginning of the year. Some commentators see this growth as a sign that...
- White papers 2003-09-11
- On the Margin
- A surge in credit available to equity markets as 1999 came to a close raised concerns over leverage, fears of speculative excesses, and questions on what the appropriate policy response should be. The Federal Reserve has ruled out changing initial margin requirements1, at least for now. Meanwhile, banks and securities...
- White papers 2000-02-16
- Deflation’s Profit Squeeze
- The crosshairs of deflationary product price trends and rising payroll costs are triggering an unprecedented gross profit squeeze for distributors who rely solely on margin mark-up pricing. Here is the evidence on deflation in the industrial economy, the profit impact of these trends, and three strategies for survival. Deflation wreaks...
- White papers 2003-01-01
- For-Profit Hospital Operator Sector: 2005 Outlook
- Fitch's 2005 outlook for the for-profit acute care hospital management sector is guarded. 2004 was a fairly spotty year for the for-profit acute care provider sector. Earnings and margins were again pressured throughout the year by trends that emerged in mid-to-late 2003 and are expected to linger into 2005. Specifically,...
- White papers 2005-01-05
- Automation Strategy - A Key To LNG Project Success
- Engineering and construction market, protecting ones profit margin is simply harder to achieve. Competition keeps margins thin and projects become more complex. Projects that seemed to be running smoothly can suddenly experience profit fade in the final few months. Late starts and unbalanced backlog can leave one overstaffed or short-handed....
- White papers 2005-10-24
- Options Strategies : Buying Calls
- The long call strategy provides unlimited profit potential with limited risk. It is best used in a bullish market where a rise in the price of the underlying asset above the breakeven is anticipated. Zero margin borrowing is allowed. That means that one don't have to hold any margin in...
- White papers 2003-01-01
- State-Dependent or Time-Dependent Pricing: Does It Matter for Recent U.S. Inflation?
- Inflation equals the product of two terms: an extensive margin the fraction of items with price changes and an intensive margin the average size of those price changes. The variance of inflation over time can be decomposed into contributions from each margin. The extensive margin figures importantly in many state-dependent...
- White papers 2005-01-01
- Incorporating Price And Inventory Endogeneity In Firm-Level Sales Forecasting
- As numerous papers have argued, sales, inventory, and gross margin for a retailer are interrelated. A simultaneous equation model is constructed to establish these interrelationships at a firm level. Using publicly available financial data the six causal effects among sales, inventory, and gross margin are estimated. The results show that...
- White papers 2007-01-09
- Profit-Margin Math: Leveraging ABM Data for Exceptional BPM Results
- A BPM system is only as good as the information -- and the analytical methodologies -- it contains. Activity-based management ABM integrated with BPM ensures informed decision-making as well as accelerated profit and productivity improvement. When managers combine ABM with other components of BPM, such as strategy maps and scorecards,...
- White papers 2004-03-01
- How to Handle Price Buyers
- Article explains a myth, "But we have to justify our prices to our customers!" One of the oldest tricks for a customer to demand that sellers justify their prices. Nothing is more absurd. The basic problem with trying to justify the prices is that the customer does not want...
- White papers 2003-01-01
- The Effects of Taxation on Canada Property & Casualty Insurers and Customers
- This research aims to investigate how the taxes imposed upon P&C insurers affect the price level and underwriting profit margin, using two alternative approaches: the Capital Asset Pricing Model CAPM and the Option Pricing Model OPM. This research project studies the effects of taxation on premium rates and the underwriting...
- White papers 2004-10-08
- How Do You Know If Your Product Will Sell Online?
- Choosing the right product to sell on the Internet spells the success or doom of your online business. The key rule to remember is that successful online goods are those that carry big profit margins - such as apparel, gourmet foods, and novelty gifts. If your product cannot be sold...
- White papers 2006-01-01
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