1. What is Net Margin?

Net Margin is a profitability ratio that shows what percentage of revenue becomes profit after all expenses are deducted. It's a key indicator of a company's financial health and efficiency.

2. How Does the Calculator Work?

The calculator uses the Net Margin formula:

Where:

• Net Profit — The amount of money left after all expenses, taxes, and costs have been subtracted from revenue
• Revenue — The total amount of money generated from sales before any expenses are deducted

Explanation: The formula calculates what percentage of each dollar earned translates into profit.

3. Importance of Net Margin

Details: Net Margin is crucial for comparing profitability between companies and industries, assessing financial health, and making investment decisions. Higher margins generally indicate more efficient operations.

4. Using the Calculator

Tips: Enter both Net Profit and Revenue in dollars. Revenue must be greater than zero. The result shows what percentage of revenue is actual profit.

5. Frequently Asked Questions (FAQ)

Q1: What's a good net margin?
A: This varies by industry, but generally 10% is healthy, 20% is excellent, and 5% is low. Compare with industry averages for meaningful analysis.

Q2: How is net margin different from gross margin?
A: Gross margin only considers cost of goods sold, while net margin includes all operating expenses, interest, and taxes.

Q3: Can net margin be negative?
A: Yes, if expenses exceed revenue, resulting in a net loss rather than profit.

Q4: Why is net margin expressed as a percentage?
A: Percentage format allows for easier comparison between companies of different sizes and across industries.

Q5: How often should net margin be calculated?
A: Typically calculated quarterly with financial statements, but can be done monthly for internal tracking.