What it measures
Net margin is net income (the bottom line) divided by revenue. It is what the company keeps from each dollar of sales after everything: product costs, salaries, research, marketing, interest and taxes. A 20% net margin means $20 of profit from every $100 of sales.
See net margin in the glossary.
What strong looks like
| Net margin | Reading |
|---|---|
| Above 25% | Exceptional; usually a strong moat |
| 10% to 25% | Healthy |
| Below 10% | Thin; little room for error |
| Negative | Losing money |
As with Gross margin, compare within an industry. A grocer at 3% can be excellent; a software company at 3% is not.
Gross versus operating versus net
| Margin | After | Tells you |
|---|---|---|
| Gross | Product costs | Pricing power |
| Operating | Running the business | How efficient the company is |
| Net | Interest and tax too | What reaches shareholders |
A big gap between gross and net margin means heavy spending on overhead, research or interest. That can be fine for a company investing in growth, as long as the gap narrows as it scales.
The trajectory
The direction matters more than one year's level:
- Expanding net margin with growing revenue is the best combination. It means operating leverage: costs grow more slowly than sales. See EPS growth (TTM and forward).
- Shrinking net margin while revenue grows means growth is being bought with spending or price cuts.
Caveats
- One-off gains or charges can swing a single year. Look at several years.
- Tax changes can move net margin without any change in the business.
- Young companies often run low margins on purpose to grow.
See also
- Gross margin What gross margin is, what it reveals about pricing power, typical ranges by industry, and why its trend matters as much as its level.
- Operating margin Operating margin measures profit from the core business before interest and tax. How it differs from gross and net margin and how to use it.
- EPS growth (TTM and forward) How to read earnings per share growth, why it can outpace revenue through operating leverage, and how buybacks can flatter it.
- The income statement How to read an income statement line by line, from revenue to earnings per share, and which lines matter most for investors.
Pages that link here: Fundamental analysis, How to research a company
Last updated September 30, 2026. Education only, not investment advice.