Net Margin


DEFINITION of 'Net Margin'

Net Margin is 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 = Net Profit / Revenue

*Where Net Profit = Revenue - COGS - Operating Expenses - Interest and Taxes


Loading the player...


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.


  1. Trading Margin Excess

    The funds that remain in a margin trading account that are available ...
  2. Low-Cost Producer

    A company that can provide goods or services at a low cost. In ...
  3. Net Sales

    The amount of sales generated by a company after the deduction ...
  4. After-Tax Profit Margin

    A financial performance ratio, calculated by dividing net income ...
  5. Cost Of Goods Sold - COGS

    Cost of goods sold (COGS) are the direct costs attributable to ...
  6. Operating Income

    The amount of profit realized from a business's operations after ...
Related Articles
  1. Stock Analysis

    4 Quick Service Restaurants for Your Portfolio

    Learn about the four quick service restaurants with attractive investment theses and growth prospects that can be valuable additions to your portfolio.
  2. Stock Analysis

    3 Reasons to Continue to Own Monster Beverage

    Learn more about the Monster Beverage Corporation and some of the primary reasons why investors and market analysts like the stock.
  3. Economics

    What is Net Margin?

    The ratio of net profits to revenues for a company that shows how much of each dollar earned by the company is translated into profits.
  4. Fundamental Analysis

    Measuring Company Efficiency

    Three useful indicators for measuring a retail company's efficiency are its inventory turnaround times, its receivables and its collection period.
  5. Markets

    A Look At Corporate Profit Margins

    Take a deeper look at a company's profitability with the help of profit margin ratios.
  6. Investing

    Take Control With Investing Absolutes

    Uncover the three things most good stocks have in common: performance, profitability and value.
  7. Markets

    Profitability Indicator Ratios

    Learn about profit margin analysis, effective tax rate, return on assets, return on equity and return on capital employed.
  8. Investing Basics

    What Does In Specie Mean?

    In specie describes the distribution of an asset in its physical form instead of cash.
  9. Economics

    Calculating Days Working Capital

    A company’s days working capital ratio shows how many days it takes to convert working capital into revenue.
  10. Economics

    Calculating Cross Elasticity of Demand

    Cross elasticity of demand measures the quantity demanded of one good in response to a change in price of another.
  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. How is gross profit margin used in sales?

    The gross profit margin is a baseline profitability ratio measurement against total sales revenue. The gross profit margin ... Read Full Answer >>
  11. What is the difference between operating margin and EBITDA

    Operating margin and EBITDA – which stands for "earnings before interest, taxes, depreciation and amortization" – are two ... Read Full Answer >>
  12. 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 >>
  13. What are some examples of factors that will affect my profit margin?

    Profit margin is not a particularly complex ratio, but is considered to be one of the most important indications of the efficiency ... Read Full Answer >>
  14. How much should my profit margins be?

    For many people, identifying and targeting a set profit margin is an important part of their business's pricing strategy. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  2. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  3. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  4. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  5. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  6. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!