Profitability
Net profit margin
Net profit margin is the share of revenue left as profit after every expense, including interest and taxes.
Net profit margin = Net income ÷ Revenue
Worked example
| Revenue for the year | $2,000,000 |
| Net income for the year | $150,000 |
$150,000 ÷ $2,000,000 = 7.5%
Why it matters
Net profit margin is the bottom line as a percentage: how many cents of each dollar of sales the business keeps. Tracked over time, it shows whether growth is making the business more profitable or just bigger.
Common mistakes
Where it misleads
Comparing net margins across companies with different debt, tax positions or owner pay, which all sit above net income.
Letting one-off items, such as an asset sale or a legal settlement, stand in for the trend.
Reading margin as cash: a profitable business can still run short if customers pay slowly.
Related terms
Keep reading
- Operating marginOperating margin is the share of revenue left after the cost of goods sold and all operating expenses, before interest and taxes.
- Gross marginGross margin is the share of revenue left after paying the direct costs of delivering what you sold.
- EBITDAEBITDA is earnings before interest, taxes, depreciation and amortization: a measure of operating profit before financing, tax and non-cash charges.
Stop calculating it by hand.
Dear CFO keeps your statements, forecasts and metrics current from the systems you already run.