Profit margin is a financial metric that shows how much profit a company makes for every dollar of revenue it generates. It is calculated by dividing the net profit by total revenue and then multiplying by 100 to get a percentage. A higher profit margin indicates that a company is more efficient at converting sales into actual profit, which is a positive sign for investors and stakeholders. Understanding profit margin is essential for evaluating a business's financial health. For example, if a restaurant has a profit margin of 20%, it means that for every $100 in sales, the restaurant keeps $20 as profit after covering all expenses. This metric helps compare profitability across different industries and companies.