Profitability · updated October 21, 2026
What is net margin and how is it calculated
Net margin shows how many dollars of profit are left for shareholders from every $100 of sales, after every single cost, interest and tax. A net margin of 10% means $10 of profit for every $100 of sales.
Net margin formula
- Net profit
- What is left after all costs, interest and tax, over the last 12 months.
- Sales
- Revenue over the same period.
Worked example
A company sells $8 billion and keeps a net profit of $1 billion.
From every $100 sold, $12.50 is left for shareholders.
How to read net margin
Read net margin together with sales: a company with a small margin but huge sales can make more profit than one with a high margin.
When net margin can fool you
One-off profits: selling a division or a currency gain inflates net margin for a year. An unusually low tax bill in one year makes profit look better.
Related terms
Questions about net margin
What is a good net margin?
Above 10% is good for most companies. In retail, 3% can be excellent; in software, below 15% is weak.
These explanations are for information only. They are not a recommendation to buy or sell.
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