### Definition: What is Profit Margin Ratio?

**Profit Margin Ratio** is also called return on sales or gross profit ratio. It is the profitability ratio that compares the net income with net sales of the company for the measuring of net income amount earned with each dollar of sales generated by the company.

In other words, PM ratio shows what per cent of sales left over after the payment of all the expenses of the business.

Investors and creditors use this ratio to find the efficiency of the company that how efficiently a company converts sales into net income. Investors like the company which has high profit and creditors want to make sure that the company has enough profit to pay back its loans.

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