Net margin

Net income as a percentage of revenue: what is left of each dollar of sales after every cost, interest and tax.

DefinitionNet income as a percentage of revenue: what is left of each dollar of sales after every cost, interest and tax.

Net margin is net income divided by revenue. It is the bottom line of the income statement expressed per dollar of sales, after cost of goods sold, operating expenses, interest, taxes and one-time items. It answers the question owners ask first: of everything we sold, how much did we keep?

How it is computed

Net margin = net income / revenue × 100. Use net revenue, after returns, discounts and credits, and the same period for both figures.

Example

Revenue of $2,000,000 and net income of $150,000 give a net margin of 7.5%. If a $40,000 one-time gain is inside that net income, the margin from ongoing operations is $110,000, or 5.5%.

Where it goes wrong

Comparing companies with different debt and tax positions: two businesses with the same operations can show very different net margins because one carries a loan. One-time gains and losses also swing it, so read it next to operating margin. Work it out with the profit margin calculator.

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