How is "profit margin" defined in business?

Profit margin is defined as the percentage of revenue that exceeds the costs of goods sold, which is crucial for assessing the efficiency of a business. It reflects how effectively a company converts sales into profit, providing insight into its financial health. A high profit margin indicates that a company retains a significant portion of its revenue as profit, while a low profit margin may suggest inefficiencies or high costs relative to sales.

Understanding profit margin is essential for businesses to make informed decisions about pricing, cost management, and sales strategies. It helps stakeholders analyze the company's profitability compared to competitors and can influence investment decisions. Therefore, having a clear grasp of profit margin underlines its importance, making the defined percentage a key indicator of business performance.