What does a higher profit margin indicate about a business?

A higher profit margin is indicative of better management of operating expenses within a business. Profit margin is calculated as net income divided by revenue, providing insight into how much of each dollar earned translates into profit after all expenses are accounted for. When a business maintains a higher profit margin, it suggests that it is effectively controlling its operating costs relative to its sales. This efficiency can arise from various factors, such as streamlined operations, effective cost-cutting measures, or strong pricing strategies that keep expenses lower without sacrificing revenue.

In contrast, a higher profit margin does not necessarily correlate with higher costs of goods sold, a focus solely on revenue growth, or increased market share, as these factors can vary independently of the profit margin and do not inherently reflect the management of costs. Therefore, option B provides the most accurate description of what a higher profit margin indicates about a business's financial health and operational efficiency.