Remember that there are three main types of profit margins we can measure: gross, operating, and net. These three look at gross profit, operating profit, and net income as a percentage of sales. In a nutshell, margins tell you how much of each type of profit a company is generating per dollar of sales.
It should make sense that companies with economic moats generally have larger profit margins than their competitors. Wal-Mart (WMT) may sell an apple at the same price as a local grocery store. But if Wal-Mart's costs are lower, its profit margins on the sale of the apple will be higher. Likewise, it may cost the same for Harley-Davidson (HOG) and one of its competitors to build a motorcycle, but Harley should be able to sell its bike at a higher price because of its brand. Harley will have the higher profit margin.
A net margin consistently in excess of 15% is a good benchmark that often indicates a company has sustainable competitive advantages. Do keep in mind, however, that margins by themselves are of limited use; you also have to consider the context of turnover and return, which we will discuss shortly.