Profit Margin

Profit margin (net profit margin) is the percentage of revenue that remains as profit after all expenses, taxes, and costs are subtracted. A profit margin of 15% means the company keeps $0.15 of every dollar it earns in revenue.

What counts as a good margin depends entirely on the industry. Software companies often run above 20%. Retailers and restaurants typically operate under 5%. Comparing margins across industries is misleading because the cost structures have nothing in common.

What matters more than the absolute number is the direction. Improving margins mean the company is becoming more efficient or gaining pricing power. Declining margins might mean rising costs, increased competition, or pricing pressure.

A company can have high revenue growth but declining margins if it is spending heavily to grow. Whether that is a problem depends on whether the spending will eventually produce higher margins once the growth phase slows down.