Glossary
Net Margin
Net profit as a percentage of sales
Net margin is net profit divided by revenue — how much of every 100 in sales survives to the bottom. It comes after every cost, interest payment and tax.
Where gross margin asks whether selling is profitable, net margin asks whether the company is. A high gross margin with a low net margin means money is leaking after the point of sale.
Tracing the income statement downward shows where. Excessive wages and marketing, heavy interest, or a large tax burden each reveal themselves at their own line.
Benchmarks differ completely by sector: 2-3% is normal for large retailers, while software can exceed 20%. Position within the same industry matters more than the absolute figure.
Beware its sensitivity to one-off events. Selling a property or paying a legal settlement distorts a single year. Reading several years together is what shows the real profitability.