Sales margin analysis allows a company's senior management to measure progress in sales and marketing efforts. Financial analysts and the firm's sales force evaluate sales levels at the end of each month.
Revenue is income that a company generates by selling goods--finished products or raw materials--or providing services. Gross margin is the total revenue minus the cost of goods or services divided by total revenue. Net margin is the total revenue minus expenses divided by total revenue.
Sales margin analysis is a key business decision-making factor because it indicates a company's profit levels. This analysis also helps an investor gauge a firm's competitive standing and its ability to generate good returns for investors. An example investor return indicator is profit margin, or net income divided by total sales.
A company reports sales margins in the statement of income. This is also a statement of profit and loss, or P&L. In the P&L, a firm indicates sales, expenses and the net income for the month or quarter.