Definition
Net Margin
Net margin, or net profit margin, is profit after tax as a percentage of revenue, showing how much of each rupee of sales becomes bottom-line profit.
Net margin captures the full effect of operating efficiency, financing costs and taxes. It is lower than the operating margin because it also absorbs interest and tax, and it varies hugely across industries, high in software, thin in retail.
Comparing net margin over time reveals whether a company is improving profitability or being squeezed by costs, interest or competition. Because it includes one-off items, analysts often look at adjusted net margin to assess the durable profitability of the core business.
Related terms
- EBITDAEBITDA is earnings before interest, tax, depreciation, and amortisation, a measure of a company's core operating profitability.
- Operating MarginOperating margin is the percentage of revenue left as operating profit after deducting the costs of running the core business.
- Profit After Tax (PAT)Profit After Tax is a company's net profit remaining after all expenses, interest and taxes have been deducted, the bottom line of the income statement.
- Gross MarginGross margin is revenue minus the cost of goods sold, expressed as a percentage of revenue, showing the profitability of the core product before operating overheads.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.