Profit Margin

Margin turns absolute profit into a rate. A company keeping $25 of every $100 of revenue has a 25 percent margin, and that percentage is comparable between a company with billions in revenue and one with millions, where the raw profit figures are not.

There are several margins, taken at different points down the income statement. Gross margin subtracts only the direct cost of what was sold. Operating margin also subtracts the cost of running the business. Net margin subtracts everything, including interest and tax. They are all called margin, so it is worth checking which one a page is showing.

Margins are strongly shaped by industry structure rather than by management alone. Businesses that sell something requiring almost nothing to reproduce operate at high margins as a matter of arithmetic; businesses that buy physical goods and resell them operate on thin ones. A margin is most informative against the same company over time, or against direct competitors.