6.12What is Net Profit Margin?
1What is it?
Net margin is the final profit kept from each ₹100 of revenue after all expenses, interest and taxes.
2Why does it exist?
It shows the bottom-line profitability for shareholders.
3Diagram
High value means…
Very profitable business.
Low value means…
Thin profits; small cost increases can wipe them out.
Is high or low good?
Higher and consistent is better.
4Calculation
Net margin = Net profit ÷ Revenue × 100
- Revenue = ₹10,000 cr; net profit = ₹1,800 cr.
- Net margin = 18%.
₹18 of final profit from every ₹100 of sales.
5Risks
- One-time gains or losses distort it.
- Tax changes affect it.
6Practical use
Always compare a ratio with (1) the company’s own history and (2) other companies in the same industry. A single number on its own means little.
7Quick revision
- Net profit ÷ revenue.
- Bottom-line profitability.
- Check consistency.
8Knowledge check
Q1. Revenue ₹2,000 cr, net profit ₹100 cr. Net margin?Show answer
5%.
Q2. Difference between operating and net margin?Show answer
Net margin also subtracts interest, tax and other items.
Q3. What can temporarily inflate net margin?Show answer
One-time gains, like selling a property.
See it live on MojoStox