The profit margin is mostly used for internal comparison. It is difficult to accurately compare the net profit ratio for different entities. Individual businesses' operating and financing arrangements vary so much that different entities are bound to have different levels of expenditure, so that comparison of one with another can have little meaning. A low profit margin indicates a low margin of safety: higher risk that a decline in sales will erase profits and result in a net loss.
For example, a company produces a loaf of bread and sells it for €10. It cost the company €6 to produce the bread and it also had to pay an additional €2 in tax.
That makes the company's net income €2 (10 - 6, before tax, then minus 2 for tax). Since its revenue is €10, the profit margin would be (2 / 10) or 20%.
Profit margin is an indicator of a company's pricing policies and its ability to control costs. Differences in competitive strategy and product mix cause the profit margin to vary among different companies.
FOURTH-QUARTER 2006 SYSTEM AIRLINE FINANCIAL DATA: PASSENGER AIRLINES REPORT LARGEST FOURTH-QUARTER PROFIT MARGIN SINCE 1999
May 14, 2007; The U.S. Department of Transportation's Bureau of Transportation Statistics issued the following press release: A group of 21...
SECOND QUARTER 2006 AIRLINE FINANCIAL DATA: PASSENGER AIRLINES REPORT LARGEST DOMESTIC PROFIT MARGIN SINCE 2000
Sep 18, 2006; The U.S. Department of Transportation's Bureau of Transportation Statistics issued the following press release: A group of 21...