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| Profit
Margin |
|
Indicates
what portion of sales contribute to the income of a company.
Things
to remember |
- This
ratio is not useful for companies losing money, since
they have no profit.
- A
low profit margin can indicate pricing strategy and/or
the impact competition has on margins.
|
[Click
on the image(s) above to see the financial statements] |
For
Cory's Tequila Co. |
$2,096 |
=
0.17 |
$12,154 |
|
Profit
Margin Analysis:
A profit margin of 17% means that for each dollar of sales that
Cory's Tequila Co. generates it is contributing 17 cents to its bottom line (net income).
This ties in with gross profit margin, Cory's Tequila Co. has a
healthy pricing strategy which is evident in both ratios. In cutthroat
pricing industries such as retail and gasoline you would expect
the profit margin much lower because of the heavy competition. We
can interpret that Cory's Tequila Co. either has exceptional products
which customers are willing to pay a substantial premium for, or
Cory's Tequila Co. really doesn't have much competition therefore
they can charge what they wish.
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