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Net Profit vs Profit Margin

August 8, 2012

A lot of people haven’t a clue about the difference, and a lot of it has to do with the government education system. Now, FEEL FREE to share this if you like it.

A NET profit is the total earnings before bills are paid, like the NET pay you get from your paycheck BEFORE taxes. A PROFIT MARGIN is what is left over after the bills have been paid.

The ignorance on what a NET profit is versus Profit Margin is what makes it so easy for politicians to demagogue companies they hate, such as oil companies. Here is an example: Exxon-Mobil reports $10 billion in record profits. Those are NET profits. So, it seems like they have reaped these “obscene profits.” Well, out of that $10 billion, they now have to pay taxes, utilities, contractors & shareholders. Now that $10 billion isn’t so big after all.

Taxes get paid to the state & federal government. The federal government takes about .45-50 cents of every dollar they earn. Now who is obscene? NOT the oil companies. The oil companies get about .06 cents, or around 6% of every dollar. That is their PROFIT MARGIN. What they get to keep after all is said and done. It works the same with all companies, except they usually get to keep more of their earnings than the oil companies do.

By the way, everytime you raise taxes on a company, they pass those taxes onto the consumer. That explains part of why prices are so high.


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