Profit Margin = Net Income / Sales?

When you are examining ratios, you must be careful that you know how that ratio is calculated. For example, the profit margin for private companies in 2012 has reached 9.1 percent over the past three months, about triple the profit margin in late 2009 and early 2010. You would think that everyone would calculate a ratio as basic as the profit margin in the same manner, but that isn't true. If you read the last paragraph carefully, you will find that the profit margin for private companies often excludes taxes and includes owner compensation in excess of market-rate salaries. In this case, we can't compare the profit margin for a private company and a public company even if they are in the same industry since the calculation of the profit margin is different.