Profit margin measures the extent to which a company or business activity makes money, basically by dividing revenue by revenue.
Profit margin, expressed as a percentage, shows how many cents of profit were received for each dollar of sale.
While there are several types of profit margins, the most important and commonly used is the net profit margin, the bottom line profit of a company after all other expenses, including taxes and non-recurring expenses, have been excluded from revenue.
Rates of return are used by lenders, investors, and businesses themselves as indicators of a company’s financial health, management skills, and growth potential.
Since the typical rate of return varies by industry, care should be taken when comparing figures for different businesses.