How is profit margin defined?

Profit margin is defined as the percentage of revenue that remains after all expenses are deducted. This measure is crucial for assessing the efficiency and profitability of a company. It indicates how much profit is generated from each dollar of sales, providing insight into the company's financial health and operational efficiency.

When profit margin is calculated, it takes into account all expenses, including cost of goods sold, operating expenses, interest, and taxes, thereby presenting a clear picture of what portion of revenue is actually retained as profit. Understanding profit margin helps stakeholders make informed decisions regarding cost management and pricing strategies, ultimately affecting the company's overall performance.

This definition distinguishes profit margin from mere dollar amounts or revenue calculations. For example, while total revenue minus total expenses defines net profit, it does not contextualize that profit in relation to total sales. Likewise, the dollar amount of profit earned per item sold focuses on individual product performance rather than overall profitability. The ratio of total assets to total liabilities relates to the company's financial leverage and solvency rather than its profitability metrics. Thus, option B is the most accurate representation of profit margin.