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Profit Margin Definition

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on August 14, 2021

What Is Profit Margin (FAQs)

What is profit margin?

Profit margin is any profit a company generates goes to its owners, who may choose to distribute the money to shareholders as income, or allocate it back into the business to finance further company growth.

How is profit calculated?

The method of calculating profit is simple: subtract a business’s expenses from its total revenue over a fixed amount of time.

What are the three primary levels of profit?

There are three primary levels of profit of interest to investors: gross profit, operating profit, and net profit.

How is profit margin calculated?

To find profit margin, divide gross income by a company’s revenue then multiply the result by 100 to make it a percentage

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What Is Profit Margin (FAQs)

Profit margin is any profit a company generates that goes to its owners, who may choose to distribute the money to shareholders as income, or allocate it back into the business to finance further company growth.
The method of calculating profit is simple: subtract a business’s expenses from its total revenue over a fixed amount of time.
There are three primary levels of profit that are of interest to investors: gross profit, operating profit, and net profit.
To find profit margin, divide gross income by a company's revenue then multiply the result by 100 to make it a percentage.
The bottom line with profit margin - for both investors and company officers - is that it expresses to what degree the company is making money.