Net Margin

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DEFINITION of 'Net Margin'

The ratio of net profits to revenues for a company or business segment - typically expressed as a percentage – that shows how much of each dollar earned by the company is translated into profits. Net margins can generally be calculated as:

 

Net Margin

 

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BREAKING DOWN 'Net Margin'

Net margins will vary from company to company, and certain ranges can be expected from industry to industry, as similar business constraints exist in each distinct industry. A company like Wal-Mart has made fortunes for its shareholders while operating on net margins less than 5% annually, while at the other end of the spectrum some technology companies can run on net margins of 15-20% or greater.

Most publicly traded companies will report their net margins both quarterly (during earnings releases) and in their annual reports. Companies that are able to expand their net margins over time will generally be rewarded with share price growth, as it leads directly to higher levels of profitability.

 

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RELATED FAQS
  1. How can I find net margin by looking a company's financial statements?

    In finance and accounting, financial statements represent the fundamental means of analyzing a company's financial position, ... Read Full Answer >>
  2. What metrics are commonly used to evaluate companies in the retail sector?

    Some of the most commonly used metrics to evaluate companies in the retail sector include the price/earnings to growth (PEG) ... Read Full Answer >>
  3. What is the average profit margin for a company in the telecommunications sector?

    The average net profit margin for companies in the telecommunications sector, as of 2014, is approximately 11%. Net margins ... Read Full Answer >>
  4. Does a high efficiency ratio mean that the company is profitable?

    Though a company may have a high efficiency ratio, this does not necessarily mean it is profitable. Efficiency ratios are ... Read Full Answer >>
  5. Should I look at a company's operating profit or net profit?

    When evaluating a company, look at both the operating profit margin and the net profit margin to obtain a more complete picture ... Read Full Answer >>
  6. What other investment metrics are best used in conjunction with net margin?

    Some of the metrics that are best used in conjunction with net margin include the operating profit margin, the price to book ... Read Full Answer >>
  7. Is return on sales the best metric for profitability?

    While return on sales, or ROS, is an important evaluation metric used by investors and analysts, it is not generally considered ... Read Full Answer >>
  8. What is the difference between gross profit margin and net profit margin?

    Gross profit margin and net profit margin are two separate profitability ratios used to assess a company's financial stability ... Read Full Answer >>
  9. What is the average profit margin for a company in the railroads sector?

    When examining average profit margins for companies in the railroad industry, it is important to consider both net profit ... Read Full Answer >>
  10. What costs are not counted in gross profit margin?

    There are three progressively more inclusive and accurate measures of a company's profitability: gross profit margin, operating ... Read Full Answer >>
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    Operating margin and EBITDA – which stands for "earnings before interest, taxes, depreciation and amortization" – are two ... Read Full Answer >>
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    The gross profit margin is a baseline profitability ratio measurement against total sales revenue. The gross profit margin ... Read Full Answer >>
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