Profit Margin

Subtract cost of goods sold from net sales, and divide the result by net sales. Basically, profit margin tells you the rate of profit generated on actual business operations, leaving aside capital investment, depreciation and other costs that don't directly and immediately relate to the cost of goods. A firm with a razor-thin profit margin generally is less attractive to investors than one with a big profit margin, but like all such measures, this one varies widely by industry. Profit margins for successful software firms and movie studios can be quite high, while profit margins for supermarket chains tend to be low.



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