Profit Margin

Profit Margin (aka ‘net profit margin’ or ‘after-tax profit margin’) is calculated by dividing your net income by your gross sales. It shows how much your company earns at the end for each dollar of gross sales. It needs to be analyzed in exactly the same way as your operating margin.

However, you must always keep in mind that your net income is calculated on an accrual basis. Therefore, from financial value perspective, the far more useful KPI is your free cash flow margin (free cash flow divided by your gross sales). FCF margin shows how much cash flow your company generates from each dollar of your gross sales.