Glossary
Net profit margin
Net income divided by revenue: the share of each sales dollar that ends up as profit after all costs.
On this page
Net profit margin is net income as a percentage of revenue. It shows how many cents of profit a company keeps from each dollar of sales after paying every cost, including interest and taxes. Because it folds in everything from pricing power to borrowing costs, it is a quick summary of how profitable a business is, and a way to compare companies of different sizes on equal terms.
How it is calculated
Reading the number
Margins only make sense against peers and against the company's own history. A supermarket chain may run on 1% to 3% net margins and still be a healthy business because it turns over its inventory quickly; a software company with 25% margins may be no better an investment if its growth is slowing. Rising margins over several years can signal pricing power or scale; falling margins can signal competition or rising costs.
Net margin is the noisiest of the profit margins because it includes interest, taxes and one-off items. A tax benefit or the sale of a business can lift it for a single year. Analysts often look at gross margin and operating margin alongside it to see where along the income statement profit is being made or lost.