Below 5%: thin
Normal for grocers, retailers, and distributors; fragile elsewhere. A small cost shock can erase it.
Definition
What is net profit margin?
Net profit margin is net income divided by revenue, expressed as a percent. It's the share of every sales dollar that survives all the way down the income statement (after costs of goods, overhead, interest, and tax) to become bottom-line profit. A 15% net margin means 15 cents of profit per dollar of sales.
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Short answer
Net margin is the broadest profitability gauge, but it's heavily industry-dependent - software clears 25%+, grocers run ~2%. Watch the trend (is it expanding?) and compare to direct peers, then pair it with gross and operating margin to see where profit is made or lost.
How to read net profit margin
5-10%: solid
A healthy margin for most industries: the business keeps a real slice of every sale.
10-20%: strong
Evidence of pricing power, scale, or a genuine cost advantage.
Above 20%: excellent
Typically software, brands, or franchises with real moats. Rare and durable when it's genuine.
Margin direction beats revenue growth
Two companies each grow revenue 10 percent. The first expands net margin from 8 percent to 11 percent (its profit grows about 50 percent. The second holds margin flat) profit grows 10 percent, in line with revenue. Same top line, very different bottom line.
That's why investors track the full cascade (gross margin, then operating margin, then net margin) rather than the bottom number alone. Where the margin compresses or expands tells you whether the story is pricing power, cost discipline, rising interest expense, or tax.
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Related
- What is gross margin? - revenue minus cost of goods: the top of the profitability cascade and the cleanest pricing-power signal.
- What is operating margin? - profitability after operating overhead, before interest and tax.
- What is ROE? - net margin is one of the three DuPont drivers of return on equity.
- What is DuPont analysis? - how margin, asset turnover, and leverage combine into returns.
See the full margin cascade
invest-like shows gross, operating, and net margin with their multi-year trend on every stock, so you can see where profit is won or lost.
Educational only. invest-like is not a registered investment adviser; nothing here is personalised investment advice. Always do your own research and consider your individual circumstances.