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profit margin is a ratio that measures how much income is kept in a company as compared to the total revenue simply put it is a measure of profitability to find out how much of every dollar of revenue is kept in the form of profit a firm calculates its net profit by subtracting all of its expenses including interest in tax and divides that number by total revenue letamp;#39;s compare Albertamp;#39;s flooring and Edamp;#39;s carpets Edamp;#39;s revenue was 1 million dollars after taking out expenses and other operational costs Edamp;#39;s carpets made a net profit of $200,000 so the companyamp;#39;s profit margin is 20 percent 200,000 divided by 1 million this means that 20 percent of every dollar in revenue was profit or more fundamentally that Edamp;#39;s keeps 20 cents for every dollar in revenue Albertamp;#39;s flooring at revenue of 2 million dollars and a net profit of 300,000 Albertamp;#39;s as a profit margin of 15 percent so even though Albertamp;#39;s earned