Fundamental AnalysisLesson 36 of 100About 5 minutes

Net Profit Margin

Net profit margin shows how much of a company's revenue remains as net profit after expenses.

Start the lesson

Introduction

Net profit as a share of revenue

Net profit margin shows how much net profit a company reports for each rupee of revenue. Net profit is calculated after relevant operating costs and other items such as interest and tax, according to the company's financial reporting.

The short answer

Net profit margin = net profit ÷ revenue × 100. It can be positive or negative and should be read alongside the underlying results.

The formula

Divide net profit by revenue

Net Profit Margin = Net Profit ÷ Revenue × 100

The calculation uses net profit and revenue for the same reporting period. Check how a source defines each figure and whether it uses consolidated or standalone results.

₹1,000 example

Calculate an illustrative net margin

If revenue is ₹1,000 and net profit is ₹100, the net profit margin is 10%.

Illustrative net profit margin

10%

₹100 net profit ÷ ₹1,000 revenue × 100

A negative net profit is valid and produces a negative margin. This example is for learning, not data from a specific company.

Operating vs net margin

They include different costs

Measure
Profit used
What it indicates
Operating margin
Operating profit
Profitability from operations before interest and tax.
Net profit margin
Net profit
Profitability after relevant expenses, including interest and tax.

Differences between these margins can prompt questions about interest costs, tax, or other items, but the financial statements are needed to understand the reasons.

Key points

What to remember

  • Net profit margin = net profit ÷ revenue × 100.
  • It shows net profit as a percentage of revenue.
  • A negative margin indicates a net loss relative to revenue for the period.
  • Net profit margin includes more than operating margin, such as interest and tax.
  • Compare similar companies and check trends across periods.
  • One margin figure does not guarantee future performance or returns.

This lesson is for education only, not personalized financial, tax, or investment advice. Investments in securities are subject to market risks.

Test yourself

5-question quiz

Choose one answer for each question, then check your score.

  1. 1.What does net profit margin measure?
  2. 2.If revenue is ₹1,000 and net profit is ₹100, what is the net profit margin?
  3. 3.What does a 10% net profit margin mean in a simple example?
  4. 4.Can a company have a positive operating margin but a negative net profit margin?
  5. 5.Why compare net profit margins with similar companies and across periods?

Answer all five questions to see your score.