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The Advantage of High Profit Margins

Selena Maranjian
May 12, 2009

There are many factors to examine when you're thinking of investing in a company. From my Foolish colleagues, you can learn about how important insider ownership and return on equity can be in a winning stock. Also, dominance in a growing industry and high corporate values play a part in one colleague's best stock-picking strategy.

To add a thought of my own, here's a relatively simple factor that you should understand if you're going to pick stocks on your own: net profit margin. You can learn the basics about it here, but, essentially, margins tell you how much of every dollar of revenue ends up as profit on the bottom line.

After you feel comfortable understanding what net profit margin is, play around with it a little -- do some screening and see what you can discern about companies that interest you. Here -- check out some of the companies I got when I screened for large caps with net margins above 20%:


Net profit margin

Oracle (Nasdaq: ORCL  )


Paychex (Nasdaq: PAYX  )


Schwab (Nasdaq: SCHW  )


Coach (NYSE: COH  )