What Is Net Profit Margin?
Net profit margin is net income divided by revenue: the cents per sales dollar left for shareholders after every cost, interest and tax. Formula and filed examples.
- net margin
- profit margin
- net income margin
Net profit margin is a company's net income divided by its revenue. It shows how many cents of each sales dollar are left for shareholders once the company has paid for everything: the product, salaries, marketing, interest on debt and income tax. It is the bottom line of the income statement, expressed as a percentage.
How it's calculated
Net profit margin = Net income / Revenue
Say a company has $2 billion of revenue and, after every cost, interest payment and tax bill, $100 million is left. Its net profit margin is 5%: five cents out of every sales dollar. From those five cents the company can pay a dividend, buy back shares or reinvest in the business.
Net margin is the lowest of the three margins on the income statement. Gross margin shows the surplus on the product alone, operating margin the surplus after running the company, and net margin what is left after everything. Setting the three side by side shows on which floor of the income statement a company loses the most.
A real example
Costco's fiscal 2025, which ended on August 31, 2025, produced $8.10 billion of net income on $275.24 billion of revenue. The net profit margin was 2.94%, under three cents per dollar of sales.
Nvidia's fiscal-2026 net profit margin was 55.6%: $120.07 billion of net income on $215.94 billion of revenue. More than 55 cents of every dollar stayed with the company.
The gap is almost twentyfold, and it does not say which company is "better". It says they run two completely different models. Costco sells at a deliberately minimal markup and earns through scale and membership fees, turning its assets over several times a year. Nvidia sells a product where demand outruns supply, at a very large markup. Comparing net margin between these two companies means nothing. Comparing Costco's net margin with another warehouse club, or with Costco five years ago, means a great deal.
What to watch for
Net income is the number in a filing most exposed to one-time events. Selling a subsidiary, writing down goodwill, a change in tax rate or a revaluation of an investment can move net margin by several points in a single year with no change in the underlying business. So when net margin jumps, the first check is whether operating margin moved the same way. If it did not, the cause lies below operating income.
The second pitfall is capital structure. A company with heavy debt pays heavy interest, so its net margin sits lower than that of a debt-free competitor even if both businesses run identically. For that comparison, operating margin is the fairer measure.
Net margin says most when read with asset turnover. A thin margin with fast turnover and a fat margin with slow turnover can produce the same return on equity, which the three-part breakdown of ROE makes visible.
Related terms
EPS divides the same net income by the share count instead of by revenue. Operating margin measures profitability before interest and tax. The Costco model, where a thin margin is the goal rather than a problem, is laid out in Costco on one page.
Real example
Costco's fiscal-2025 net income was $8.10 billion on revenue of $275.24 billion, a net profit margin of 2.94%. Nvidia's fiscal-2026 net profit margin was 55.6%.
SourceFrequently asked questions
How do you calculate net profit margin?
Divide net income by revenue and multiply by 100. A company with $2 billion of revenue and $100 million of net income has a 5% net profit margin. For a group with minority shareholders in its subsidiaries, use the net income attributable to the parent company's shareholders.
What is a good net profit margin?
No single threshold fits every industry. Retailers typically run net margins of a few percent, while software and pharmaceutical companies can exceed 25%. A comparison with the company's own history and with direct competitors says far more than any general rule.
What is the difference between net margin and operating margin?
Operating margin stops before interest, taxes and investment results. Net margin includes all of them. If net margin rises faster than operating margin, look below operating income for the reason: lower interest, a lower tax rate or a one-time gain.
Does a low net profit margin mean a weak company?
No. A thin margin combined with fast asset turnover can produce a high return on capital. A retailer that keeps 3 cents per dollar but turns its assets over several times a year can earn more for shareholders than a manufacturer with a 20% margin and a heavy balance sheet.
Related terms
Related reading
This page explains a term in plain language. It is not investment advice and carries no recommendation to buy, sell, or hold anything.