What is Profit Margin?
Profit margin is what’s left over from each real that comes in. If a company bills R$ 100 and has R$ 80 in costs, its profit margin is 20%. The larger the margin, the more efficient the business is.
Types of Margin
Gross Margin
- (Revenue - Cost of Products) ÷ Revenue × 100
- Shows efficiency in production/purchase
Operating Margin
- (Revenue - Costs - Operating Expenses) ÷ Revenue × 100
- Shows efficiency of operation
Net Margin
- Net Profit ÷ Revenue × 100
- Shows how much is really left over at the end
Practical example (clothing store)
| Value | Margin | |
|---|---|---|
| Billing | R$ 50,000 | - |
| Cost of clothes | R$ 20,000 | Gross: 60% |
| Expenses (rent, salaries) | R$ 20,000 | Operational: 20% |
| Taxes | R$ 5,000 | Net: 10% |
| Net Profit | R$ 5,000 |
What it’s for (investor)
When analyzing stocks, the profit margin shows:
- Companies with high margins have a competitive advantage
- Increasing margins indicate improving efficiency
- Very low margins indicate a fragile business
For personal finance
You also have a “margin”: how much is left over from your salary after all expenses. If you earn R$ 5,000 and R$ 1,000 is left over, your personal margin is 20%. The ideal is at least 20% (50-30-20 rule).