Question

If our net income on December 31st, 2015 was $4500, and our sales were $42080, was is our profit margin? What does this tell us?

Answer 1

To calculate the profit margin, you can use the following formula:

\[
\text{Profit Margin} = \left( \frac{\text{Net Income}}{\text{Sales}} \right) \times 100
\]

Given your net income of $4500 and sales of $42080, the calculation would be:

\[
\text{Profit Margin} = \left( \frac{4500}{42080} \right) \times 100
\]

Calculating this gives:

\[
\text{Profit Margin} = \left( 0.1065 \right) \times 100 \approx 10.65\%
\]

This means your profit margin is approximately **10.65%**.

### Interpretation:
A profit margin of 10.65% indicates that for every dollar of sales, about 10.65 cents is profit after all expenses have been accounted for.

- A profit margin above 10% typically suggests a healthy business where the company effectively manages its costs relative to its revenue.
- This margin can vary greatly across different industries, so comparing it with industry averages can provide additional context.