Sitemap

Net margin definition

Description

Net margin, sometimes known as net profit margin, is an important profitability ratio. Mostly it is expressed as a percentage and indicates how much net income a company earns from each dollar of sales. Data to calculate this ratio is collected from the income statement.

Net margin is the ratio that especially interests the company’s owners, as it shows “pure” profitability. In some way it is one of the key profitability ratios.

Norms and limitations

There are no general norms for this ratio.

Even in the same industry companies with the different values of this ratio can be observed. It happens because net margin depends on a wide range of factors.

Formula

Net income (net profit, net earnings) usually called as “the bottom line” is a measure which is calculated by taking revenues (sales and other incomes) and adjusting them to the cost of sales, operating cost, depreciation and amortization, interest, taxes and other expenses.

In short, net sales (revenues, sales) can be described as sales, deducting returns and discount for customers