Net Margin
The percentage of revenue that becomes profit after all expenses, taxes, and interest are paid.
Net margin — also called net profit margin — is calculated as Net Income / Revenue × 100. It represents the ultimate profitability of a business: for every dollar of revenue, how many cents reach the bottom line.
Net margin captures everything: cost of goods sold, operating expenses, interest, depreciation, and taxes. This makes it the most comprehensive profitability metric, but also the most influenced by one-time items, accounting choices, and capital structure.
Healthy net margins vary significantly by industry. Software companies can achieve 20-30% net margins. Retailers might operate at 3-5%. Professional services firms typically fall between 10-20%.
For investors and lenders, net margin trends over time are more important than absolute levels. A company with improving net margins demonstrates operating leverage and disciplined cost management. Declining margins, even in a growing business, raise questions about scalability.
Related Terms
The percentage of revenue remaining after subtracting cost of goods sold — a measure of pricing power.
Earnings Before Interest, Taxes, Depreciation, and Amortization — a measure of operating profitability.
A financial report summarising revenue, costs, and profit over a specific period.