Profit percentage is the net earnings generated by a business, divided by its sales. The resulting proportion of sales shows how well management can generate profits from a given sales level. This is the primary measure of corporate performance. The percentage is commonly used in two ways to evaluate a business, which are:
- Trend line. The profit percentage for multiple periods is plotted on a trend line, to discern any spikes or dips in the trend. One can then investigate the reasons for these changes.
- Industry analysis. The profit percentages of the best competitors in the industry are compared to the percentage for the subject company, to see how well its performance compares.