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A company’s ultimate goal is to make money and keep it.  There are 3 profit margin ratios to measure how much money it generates from its total revenue or sales – gross profit, operating profit and net profit margin.


  1. Gross Profit Margin
    The gross profit margin tells us the profit a company makes on its cost of sales or cost of goods sold. In other words, it indicates how efficiently management uses labor and supplies in the production process – a higher margin % is a favorable profit indicator but vary drastically from business to business.

  2. Operating Profit Margin
    By comparing earnings before interest and taxes to sales, operating profit margins show how successful a company's management has been at generating income from the operation of the business - high operating profits can mean the company has effective control of costs, or that sales are increasing faster than operating costs. Positive and negative trends in this ratio are, for the most part, directly attributable to management decisions.

  3.  Net Profit Margin
    Net profit margins are those generated from all phases of a business, including taxes. In other words, this ratio compares net income with sales. It comes as close as possible to summing up in a single figure how effectively managers run the business – often referred to simply as its profit margin or “bottom line”

  4. Minimize Costs
    Companies use cost controls to manage and/or reduce their business expenses. By identifying and evaluating all of the business's expenses, management can determine whether those costs are reasonable and affordable. Then, if necessary, they can look for ways to reduce costs through methods such as cutting back, moving to a less expensive plan or changing service providers. The cost-control process seeks to manage expenses ranging from phone, internet and utility bills to employee payroll and outside professional services

  5. Maximize Market Share
    Market share is calculated by taking a company's sales over a given period and dividing it by the total sales of its industry over the same period. This metric provides a general idea of a company's size relative to its market and its competitors. Companies are always looking to expand their share of the market, in addition to trying to grow the size of the total market by appealing to larger demographics, lowering prices or through advertising. Market share increases can allow a company to achieve greater scale in its operations and improve profitability.

Based on the following:

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