Net Margin

net margin

See net profit margin.

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Net Margin

A measure of how well a company controls its costs. It is calculated by dividing a company's profit by its revenues and expressing the result as a percentage. The higher the net margin is, the better the company is thought to control costs. Investors use the net margin to compare companies in the same industry and well as between industries to determine what are the most profitable.

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Net margin. A company's net margin, typically expressed as a percentage, is its net profit divided by its net sales. Net profit and net sales are the amounts the company has left after subtracting relevant expenses from gross profits and gross sales.

The higher the percentage, the more profitable the company is. Fundamental analysts use net margin, sometimes called net profit margin, as a way to assess how effective the company is in converting income to profit.

In general, a higher net margin is the result of an appropriate pricing structure and effective cost controls.