5 Most Important Financial Ratios to Analyze a Company

1. Profit Margin Ratio

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According to our methodology, the profit margin ratio is one of the most important financial ratios to analyze a company. The profit margin ratio, commonly termed the net margin ratio, calculates the percentage of profit a company produces from its total revenue. It is calculated by dividing the net income of a company by its total revenue for a certain fiscal period. Usually, accountants multiply the ratio by 100 to obtain a percentage. The net margin is an important indicator of whether the company is generating enough income from its sales and has its overhead and operating costs under control. A low margin may suggest high costs and is also a strong measure to compare business performance.

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