Definition
Net profit margin shows the bottom-line profitability of each dollar of revenue. It captures the combined effect of cost management, pricing power, tax efficiency, and capital structure. Expanding margins over time typically signal improving competitive position and operational efficiency.
functions Formula
Net Margin = Net Income / Revenue × 100%
lightbulb Example
Revenue is $100M and net income is $12M. Net margin = 12%. If the industry average is 8%, this company demonstrates superior profitability and likely has competitive advantages.
verified_user Key Points
- Captures all costs including taxes and interest
- Industry comparison essential—tech margins differ vastly from retail
- Margin expansion is a bullish signal
- One-time items can temporarily distort margins