Understanding Corporate Cannibalism
profit margin is a ratio that measures how much income is kept in a company as compared to the total revenue. simply put, it is a measure of profitability. to find out how much of every dollar of revenue is kept in the form of profit, a form calculates its net profit by subtracting all of its expenses including interest and tax and divides that number by total revenue. let's compare albert's flooring and ed's carpets. ed's revenue was $1,000,000. after taking out expenses and other operational cost, ed's carpets made a net profit of $200,000. so, the company's profit margin is 20%, $200,000 divided by $1,000,000. this means that 20% of every dollar in revenue was profit, or more fundamentally, that ed's keeps ¢20 for every $1 in revenue. albert's flooring had revenue of $2,000,000 and a net profit of $300,000. albert's has a profit margin of 15%. so, even though albert's earned more revenue and had a larger net profit, ed's actually has the better profit margin, meaning ed's keeps more money from every dollar in sales. profit margin is a measure of efficiency, but it is not perfect. ?, ed's will make much more in profit than albert's, if ? grow its sales to $2,000,000 without sacrificing its profit margin. however, in practice, it may be albert's willing ? to sacrifice profit margins by giving consumers the cheaper price that helps to double up on ed's revenue numbers. for this reason, profit margin is best used for comparing companies within the same industry that have similar revenue numbers and business models. profit margin is just one of many ratios that can help investors evaluate a stock.
- profit margin・・・利益率