Accounting ratio
Profit margin
How much of every ringgit of sales becomes profit after all expenses.
What the exam boards say
- Cambridge 0452 and 0985, 2027 to 2029: listed. Formula as printed: Profit for the year / Revenue x 100.
- Cambridge, 2026 syllabus: listed. Formula as printed: Profit for the year / Revenue x 100.
- Pearson Edexcel 4AC1: named as "profit for the year as a percentage of revenue"; the specification prints no formula.
- OxfordAQA 9215: named as "profit in relation to revenue %"; the formula is in OxfordAQA's separate guide, Formulae for accounting ratios.
Cambridge states that for 2027 to 2029 the printed formulas are the only ones accepted in candidate responses, so use the wording above for a Cambridge paper.
Sources: Cambridge IGCSE Accounting 0452: syllabus for 2027-2029 (Version 1), pages 18, 21; Cambridge IGCSE Accounting 0452: syllabus for examination in 2026 (Version 2, December 2025), page 19; Pearson Edexcel International GCSE in Accounting (4AC1) specification (FT Sept 2017) (Issue 1, October 2016), page 21; OxfordAQA International GCSE Accounting (9215) specification (FT Sept 2024) (Version 1.2), page 18. See all sources.
Worked example
Profit for the year RM8,000 on revenue RM50,000 → (8,000 ÷ 50,000) × 100 = 16%.
How to interpret it
This is the fuller profitability measure. A gap between gross margin and profit margin points to the weight of operating expenses.
Using it in analysis
Profit margin shows how much of each ringgit of sales is kept as profit after every expense is paid. It sums up the whole income statement in one percentage. Compare it year by year and with a similar business.
A rising margin suggests better cost control, prices holding without losing sales, or fixed overheads spread over more sales. A falling margin suggests expenses growing faster than revenue, discounting, or new overheads such as extra staff, higher rent or loan interest.
Example: revenue of RM400,000 and profit for the year of RM40,000 give a margin of 10%. The next year revenue grows to RM500,000 and profit to RM45,000, so the margin is 9%. Sales and profit both rose, but expenses grew a little faster. The owner should check which expenses outpaced revenue instead of celebrating the higher profit alone.
Common mistakes: the margin is not the amount of profit, so a strong margin on small sales may produce less cash than a thin margin on large sales. It also ignores how much capital was needed to earn the profit. One-off items such as a large repair or a bad debt can distort a single year, and interest on a loan can make two similar businesses look different.
Read it with gross margin. If gross margin is steady but profit margin falls, the problem is in overheads. If both fall together, the problem starts with prices or the cost of goods. Reading it next to ROCE links profit from sales to the capital used to earn it. Trading businesses often run modest margins on large volumes, while service businesses can show high margins but are sensitive to wage rises.
Limitations
One year in isolation says little; trends and comparisons matter more.
Related ratios
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