profit margins

Ratios that reflect how efficiently a company uses its resources. Specifically, profit margins are ratios of “earnings” as a percentage of sales that help analyze the profitability of a company. By expressing profit margins as a percentage, you can compare the profitability of different companies more easily. Margins also allow investors to judge, over time, management’s ability to manage costs and expenses and to generate profits. Strong sales growth is meaningless if management allows costs and expenses to grow disproportionately. Three key profit margin ratios are gross profit margin, operating profit margin and net profit margin.