Ratio Analysis
Profit Margin Ratio
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 of competition
on margins.
|
[Click
on the button above to see the financial statement] |
| For Cory's Tequila Co. |
$2,096 |
=
0.17 |
$12,154 |
Profit Margin Analysis:
A profit margin ratio of 17% that for each dollar of sales that Cory's Tequila Co. generates it is contributing 17 cents to
its bottom
line (net income). Tied 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 to be much lower because
of heavy competition. We can deduce that Cory's Tequila Co. either has exceptional products, for which customers are willing
to pay a substantial premium, or that Cory's Tequila Co. really
doesn't have much competition and they can therefore charge what
they wish.
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