Question

A company earned $2,880 in net income for October. Its net sales for October were $12,000. Its profit margin is:

Answer 1

Answer:

profit margin = 23.33%

Explanation:

profit margin = net profit /  net sales

• net profit = $2,800
• net sales = $12,000

profit margin = $2,800 / $12,000 = 0.233333 = 23.33%

The profit margin is a profitability ratio used to compare how many cents different companies are able to make from selling $1. Different companies have different sales levels, but we can group companies by industries and then compare them in order to determine which ones are more efficient at generating income. E.g. Company A sells $100 million but only makes $2 million in profits per year (PM = 2%), and it is much less efficient than Company B that sells $10 million and makes $1 in profits (PM  = 10%). Company A's costs are too high compared to Company B's costs.