The word "margin" has many different definitions within different contexts, such as referring to the edge or border of something or the amount by which an item falls short or surpasses another item. Financially, margin can refer to several specific things. The first is that it can be the difference between a product or service's selling price and its cost of production (what is used by the first calculation), or it can be the ratio between a company's revenues and expenses. It can also refer to the amount of equity contributed by an investor as a percentage of the current market value of securities held in a margin account (related to the second and third calculation), or the portion of the interest rate on an adjustable-rate mortgage added to the adjustment-index rate.
Profit MarginProfit margin is the amount by which revenue from sales exceeds costs in a business, usually expressed as a percentage. It can also be calculated as net income divided by revenue or net profit divided by sales. For instance, a 30% profit margin means there is $30 of net income for every $100 of revenue. Generally, the higher the profit margin, the better, and the only way to improve it is by decreasing costs and/or increasing sales revenue. For many businesses, this means either increasing the price of products or services or reducing the cost of goods sold.