Net Margin

Net income divided by revenue; the share of revenue retained as profit.

Net margin, also known as net profit margin, is a financial metric that measures the percentage of revenue a company retains as profit after accounting for all operating expenses, interest, taxes, and preferred stock dividends. It represents the bottom-line profitability of a business, showing how much of each dollar earned by the company actually translates into profit available to shareholders. To calculate net margin, an investor divides net income by total revenue and multiplies the result by 100 to express it as a percentage. Because it incorporates every expense a business incurs, it is a highly comprehensive measure of management's efficiency at controlling costs, managing debt, and navigating tax obligations. Investors closely monitor net margin to compare companies within the same industry. A high net margin indicates a company has strong pricing power, efficient operations, or tight cost controls, making it more resilient during economic downturns. Conversely, a low net margin leaves a company vulnerable to minor increases in operating costs or declines in sales, which can quickly push the business into a net loss.

Company A generates $10,000,000 in total revenue. After subtracting cost of goods sold, operating expenses, interest payments, and taxes, the company reports a net income of $1,500,000. Its net margin is calculated as ($1,500,000 / $10,000,000) 100 = 15%. This means Company A keeps $0.15 as profit for every dollar of revenue earned.