Quick Summary
Net Margin measures overall profitability after accounting for all costs, interest, and taxes.
Net Profit Margin (or Net Margin) is a profitability ratio that measures how much of each rupee of revenue translates into profit after all expenses, interest, and taxes are deducted. It is the ultimate measure of a company's profitability.
Net Margin Formula
Net Margin = (Net Income / Revenue) × 100
Or
Net Margin = (PAT / Revenue) × 100
Example
If a company has:
- Revenue: ₹100 lakhs
- Net Income (PAT): ₹10 lakhs
Net Margin = (₹10 / ₹100) × 100 = 10%
Components Deducted from Revenue
Revenue
- Cost of Goods Sold (COGS)
- Operating Expenses
- Depreciation & Amortization
- Interest Expense
- Tax Expense
= Net Income
Industry Benchmarks
- Retail: 2-5%
- Technology: 15-30%
- Banking: 20-30%
- Pharmaceuticals: 15-25%
- Manufacturing: 5-10%
Key Points
- Ultimate profitability measure
- Net Income / Revenue × 100
- Accounts for all expenses
- Varies by industry
- Higher indicates better overall efficiency