Net Margin
Net margin measures the percentage of revenue left as profit after all expenses.
Net margin is net income divided by revenue. It reflects the combined effects of delivery costs, operating expenses, financing costs, taxes, and other items included in the company’s income statement.
Example
A company reports $200,000 revenue and $14,000 net income for a quarter. Net margin is 7%. If it reports a $10,000 net loss instead, net margin is negative 5%. Neither outcome alone states how much cash was collected.
How to use it
Use net margin to understand overall accounting profitability after the company’s full cost structure. In the example, inspect why only 7% remains and distinguish recurring operating costs from unusual items. Pair it with cash flow because profit and available cash can move differently.
Net margin is distinct from gross margin, operating margin, and free cash flow margin. One-time gains, tax effects, or financing expenses can change the result without a corresponding change in recurring product economics. Use consistent periods and avoid mixing annual revenue with monthly net income.
Further reading: ChartMogul on Net Margin.
Related: Gross margin, Burn rate.