What Is Profit Margin?

The rate of profit is the ratio of surplus value to the total capital paid in advance. The rate of profit is a conversion of the rate of surplus value. It is another ratio calculated by different methods of the same amount of surplus value. For example, if p` is the profit rate and C is the total prepaid capital (c + v), then the profit rate is p` = m / C = m / (c + v). The profit rate is a relative indicator of the profit level of a company over a period of time. The profit margin indicator can not only assess the completion of the enterprise profit plan, but also compare the management level of different enterprises and different periods to improve economic efficiency. Cost profit margin = profit ÷ cost × 100%, sales profit margin = profit ÷ sales × 100%.

Profit margin

Profit rate

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Profit margin

Under the capitalist system, the profit rate has a tendency to decrease. This is because, with the development of the large capitalist industry, the organic composition of capital is constantly improving, and this increase must inevitably lead to a decline in profitability. But this is just one aspect of the problem. In addition, a series of factors must be seen to hinder and delay the decline in profitability. For example, with the development of capitalism, the exploitation of workers by capitalists is constantly increasing; due to the increase in labor productivity, the value of production materials such as machines, equipment, and raw materials is also declining. In addition, capitalist countries can also increase their profit margins through unequal exchanges of foreign trade. Therefore, Marx said, "Generally speaking, we have seen that the same causes of general profitability decline will have the opposite effect, hinder its decline, moderate its decline, and partially make it weak. ... So, this law only acts as a tendency; its effect can only be clearly revealed under certain conditions and after a long period of time. "

It can be understood from this that, although the profit rate is gradually decreasing, this does not mean that capitalists are getting less and less profit, let alone that the situation of workers can be improved. This is by no means the case. It is precisely because of the law of declining profitability that the capital's exploitation of wage labor is increasingly strengthened, and the antagonistic contradictions inherent in capitalist society are becoming increasingly acute.