1. What is Profit Margin?

Profit margin is a financial metric that shows what percentage of revenue has turned into profit. It's one of the most important indicators of a company's financial health and efficiency.

2. How Does the Calculator Work?

The calculator uses the profit margin formula:

Where:

• \( \text{Profit} \) — Total earnings after expenses (USD)
• \( \text{Revenue} \) — Total income before expenses (USD)

Explanation: The formula calculates what portion of each dollar earned is actual profit.

3. Importance of Profit Margin

Details: Profit margin helps businesses assess pricing strategies, control costs, and compare performance against competitors. It's crucial for investors evaluating company performance.

4. Using the Calculator

Tips: Enter profit and revenue amounts in USD. Both values must be positive, and revenue cannot be zero.

5. Frequently Asked Questions (FAQ)

Q1: What's a good profit margin?
A: This varies by industry. Generally, 10% is average, 20% is good, and 5% is low. Compare with industry benchmarks.

Q2: What's the difference between gross and net profit margin?
A: Gross margin considers only cost of goods sold, while net margin includes all expenses (taxes, operating costs, etc.).

Q3: Can profit margin be over 100%?
A: Yes, if costs are negative (unusual). This might happen with accounting adjustments or one-time windfalls.

Q4: Why is profit margin more useful than absolute profit?
A: It shows efficiency regardless of company size - a small business with high margins may be healthier than a large one with low margins.

Q5: How often should profit margin be calculated?
A: Businesses should track it monthly at minimum. Public companies report it quarterly.