Taxes, profit margins after

Figure 2. Profit margins after taxes expressed as percent of sales by industry 1953-1967...

Row 2 in Table 9-24 is the profit margin (PM) of Eq. (9-127). In this case, the net profit referred to is the net annual profit after tax and depreciation Awp. The net sales is the revenue from annual sales As after deductions for returns, allowances, and discounts for gross sales. 

Profit margin on sales Net profit after taxes/sales 5-8%... 

Sales reported for 2004 in the United States, which spends more per capita and absolutely on pharmaceuticals than does any other country, amounted to only 200 billion, which is about 1.7% of U.S. gross domestic product (GDP in that year, or 11.1% of total U.S. health spending Heffler et al. 2005). Assuming that drug manufacturers received about 75% of total retail sales and that their net after-tax proht margin was 16% on sales Fortune 2005), their after-tax profits of about 24 billion in 2004 amounted to only 0.20% of U.S. GDP in that year, and about 1.3% of total U.S. national health spending. 

Net profit margin = net income (after taxes) -=-total sales... 

Net profit margin A profitability ratio that indicates the fraction of net profit generated for every dollar of sales. It is calculated by dividing net income after taxes by total sales. 

Notes NM = not meaningful DBF = deficit. Revenues include product sales, contract research, royalty, and interest income. Profit margin represents after-tax income as percentage of revenues. 

Another measure is the profit margin on sales, which is calculated by dividing the net profit after taxes by the net sales, expressed as a percentage. Industry averages vary, but 5% is a reasonable figure. 

Savings obtained by the purchasing function go immediately to the firm s bottom line. If purchasing can reduce the amount paid to vendors by 1,000,000 during a year, the firm has 1,000,000 more in profit. If a firm obtains 1,000,000 more in sales, and it has an after tax profit margin of 10%, then profits are increased by only 100,000. 

Finally, net profit is the bottom line. After all costs, expenses, interest, and taxes have been deducted from revenue the net profit remains. Typically, when profit margin is specified, it refers to net profit margin. Use net income (net profit, net earnings) in the ratio calculation. 

Profit margin on sales indicates the profit (net income) per dollar of sales the company is earning. In other words, how much of every dollar is kept after everyone else has been paid. After paying all of the costs (COGS) and operating expenses (SG A), including interest expense, taxes, depreciation, and amortization, the amount that remains compared to what was sold is revenue. A profit margin of 10.1% tells PepsiCo that for every dollar it earns in sales, it keeps 10 cents after everyone else is paid. 

If Bond pic achieves its sales forecast of 3,600 units then the company will make a planned profit before tax of 300,000. Crucially the company s break-even point is 3,000 units, at which point Bond pic makes no profit but also no loss, because sales revenue ( 2,400,000) equals all the variable costs ( 900,000) and all the total fixed costs associated with production process ( 1,500,000). Any additionai unit soid after this point wiii provide Bond with profitabie saies revenue. The difference between the pianned profit and the break-even point is caiied the margin of safety, in the case of Bond SA, this equates to 600 units. 

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