What does the profit margin measure?

The profit margin is a financial metric that indicates how much profit a company makes for every dollar of revenue generated. It is expressed as a percentage and is calculated by dividing net profit by total revenue. This measure provides insight into a company’s ability to control costs and generate profit relative to its sales. A higher profit margin demonstrates that a company is more efficient at converting sales into actual profit, which can be a crucial indicator of financial health and operational efficiency.

In contrast, the other options pertain to different business metrics that do not capture what profit margin signifies. For example, total sales refer to the overall revenue a company brings in, but do not account for costs or profitability. The amount of revenue generated by a product focuses solely on sales figures without providing insight into profitability. Lastly, the expenditure on marketing deals specifically with costs incurred to promote products, which does not directly relate to the calculation of profit margin. Therefore, the correct choice aligns perfectly with the function and meaning of the profit margin in a business context.