What is a Profit Margin?

• A. The value of assets held by a company
• B. The percentage of revenue that is kept as tax
• C. The ratio of profit divided by revenue displayed as a percentage
• D. The total profit after all expenses

Answer: (C)

Profit margin measures how much of each dollar of revenue stays as profit after all costs are accounted for. It’s calculated by dividing profit by revenue and expressing the result as a percentage. This allows you to compare how efficiently different companies turn sales into profit, or to track performance over time. For example, if a company has $100 in revenue and $20 in profit, the margin is 20%. There are related ideas like gross margin (gross profit divided by revenue) and net margin (net profit divided by revenue), but the core idea remains the same: a ratio of profit to revenue expressed as a percentage. The other options describe assets, a tax rate, or the total profit amount, which are not what profit margin represents.