Which of the following is a correct interpretation of a profit margin of 0.20?

A) For each $1 of sales the firm earns twenty cents in net income.
B) For each $1 of sales the firm earns twenty cents before operating expenses.
C) For each $1 of sales, $2 fall to the bottom line.
D) It takes sales of $1 to generate $20 in net profit after taxes.
E) It takes twenty cents in sales to generate $1 in profit.

Profit Margin

A financial metric that calculates the percentage of revenue that exceeds the cost of goods sold, indicating the financial health and performance of a business.

Net Income

The remaining income of a company once all expenditures and tax obligations are subtracted from its revenue.

Operating Expenses

Costs associated with the day-to-day operations of a business, excluding costs linked to production or direct labor.