Through the help of profit margin is very easy to know the financial position of the company, and it very suitable method. It’s calculated on the basis of total sale and profit ratio. It’s also calculated from the total sale deducted the total cost, profit is know.
TOTAL SALES- TOTAL COST = PROFIT
To better understand it we use example:-
A product production cost is Rs. 100/- and its price is Rs. 150/-, so the profit of Rs. 50/-. The company has a profit of 50% earned. The profit of 50% of the company is the 33.33% of Sale price of the product, so the profit margin of the company is 33.33%.
The investor can take the decision on the basis of the profit margin of the company to invest in that company or not.
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