Do you know that profit margin is one of the most important thing to consider while you are investing into a competitive industry? Before that, let us venture deeper into what is a profit margin.
Profit margin the amount by which revenue from sales exceeds costs in a business. In other words, it is the net earnings of the business. It can be calculated by dividing the net income by the net sales.
But why is it so important? There are three reasons that profit margin is a huge factor to consider while investing.
1. Result in bigger cash flow
Higher profit margin could lead to a higher cash flow in the business. Imagine this. Company A have a profit margin of 25% and company B have a profit margin of 40%.
Both company achieved 1 million in sales, which of them resulted a higher cash flow to grow their business and distribute dividend to shareholders? Of course it's company B.
On a long term basis, company B will outperform company A and is a much better investment.
2. Price flexibility
A business with higher profit margin always have an upper hand in pricing war. Taking the example above, company A will suffer losses once a price war occurred. While company B can stay in the market longer.
And as time passes, the company B will capture more market share and ultimately become the market leader. That is why having a higher profit margin is very important.
3. Higher growth potential
While the last one is obvious, a lot of investors neglected the fact that a higher profit margin of a company could lead to better growth.
Higher growth rate will bring investors two types of benefit. The capital gain and higher dividend yield. Needless to say, when the company shows higher growth and dividend, surely the stock price would increase as well.
So, don't you agree that profit margin is extremely important?
你知道吗？ 利润率是投资里最重要的因数之一，尤其是我们投资在具有高竞争力的市场里。让我们了解一下到底什么是利润率。
利润率其实就是销售减成本剩余出来的利润。或者可以这么说，利润率就是一所公司的净利。而利润率的计算方法非常简单，只需要拿净利出于总销售就可以找出来了。
但是利润率为什么那么重要呢？ 其中有三大因数导致利润率在投资过程中成为了非常重要的考虑因数之一。
1. 高现金流量
高利润就可以让公司获得更高的现金流。我们都知道现金流就是一所生意的血液。打个比喻A 公司有25% 的利润率，而B 公司有40% 的利润率。
两者都达到一百万的销售，谁会有更高的盈利和能够给予投资者更多的分红呢？当然是B 公司。
长期来说，B 公司将会比 A 公司获得更好的盈利，而成为了一个较好的投资选择。
2. 商品价格容纳性
拥有高利润率的公司在价格战中永远占有优势。那刚才的例子来说 ，A 公司将会受到更大的波及，而B 公司有能力留在市场里更久。
久而久之，B 公司将会获取更多的市场而成为本身市场的首领。所以利润率极度重要。
3. 高成长率
这是最后一个也是最明显的一个。也就是高利润率可以得到更高的净利从而增加公司的成长率。
而成长率会提高股票的价格，而投资者也可以从中获得更多的分红。
所以你说，利润率重要吗？
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