Financial metrics glossary
Net profit margin: definition, formula and example
Net profit margin is the share of revenue a company keeps as profit after paying every expense, interest and tax included. It is net income divided by revenue, and it shows how much of each dollar of sales ends up as profit.
Updated
Formula
- Net income = Operating profit + Other income − Other expenses (including interest) − Income tax
- Net profit margin = Net income ÷ Revenue × 100%
Worked example
SampleSAMPLE · Northbridge Analytics, September 2026
Northbridge Analytics, the fictional software company in the Financial Analyst's public sample, for September 2026. Revenue and the operating result are the figures its report prints; the lines below the operating result come from the same books:
| Line | September 2026 |
|---|---|
| Revenue | $163,156 |
| Operating result | −$62,146 |
| Other income | $0 |
| Other expenses, including interest | $0 |
| Income tax | $0 |
| Net income | −$62,146 |
- Net income = −$62,146 + $0 − $0 − $0 = −$62,146
- Net profit margin = −$62,146 ÷ $163,156 × 100% = −38.1%
Net profit margin, September 2026: −38.1%
The sample's books post no other income, no other expense or interest and no income tax, so its net income equals its operating result and its net profit margin equals its operating margin. The prior month's net profit margin, from the same books: −56.3%.
How to read it
- Net profit margin is the bottom line of the P&L as a percentage. It moves with everything above it — prices, direct costs, overheads — and also with interest, tax and one-off items, so read it next to the gross and operating margins to see which layer moved.
- A one-off gain or loss, such as selling equipment or settling a dispute, lands in net income. Before comparing months, check whether one of them carries an item that will not recur.
- A negative margin means the company made a loss: its expenses exceeded its revenue. For a business spending ahead of growth that can be deliberate; cash runway shows how long the company can carry the loss.
- Net income is an accrual figure. A profitable month can still use cash when customers pay late or stock is bought ahead of sales, so read the margin next to operating cash flow.
How small US public companies compare (FY2025 10-Ks)
- Median
- −49.4%
- Middle half
- −217.9% to −3.9%
- Companies
- 722
All industries, from Ataski's study of the fiscal 2025 annual reports (Form 10-K) that non-accelerated filers with revenue of $1 million to $250 million filed with the SEC: half the companies are above the median and half below, and the middle half fall within the range shown. These are small public companies, not private businesses, so read the figures as a reference point rather than a target.
Net margin by industry, with the method →
Source: Ataski analysis of SEC Financial Statement Data Sets (FY2025 10-K filings).
Where it shows up in the monthly management report
The report's “Key indicators (YTD)” table prints the gross, operating and net profit margins for the year to date, each against the same months a year earlier, with the change in percentage points.
Its “Actual results by month” table follows revenue month by month down to net income, so the margin can be traced across the year.
- Open the sample workspace — a fictional company's books, worked by the Financial Analyst, with its monthly report. No signup.
- The Financial Analyst — what it reads from your accounting system, what the report contains and what it costs.
Related metrics
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Operating margin
Operating profit as a share of revenue, before interest and tax.
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Gross margin
The share of revenue left after the direct costs of what you sold.
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EBITDA
Operating profit with depreciation and amortization added back.
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Operating cash flow
The cash a business's day-to-day operations bring in or use up.
Frequently asked questions
What is a good net profit margin?
Median −49.4% (middle half −217.9 to −3.9%), 722 companies, FY2025 10-Ks: the net margin of small US public companies, with revenue of $1 million to $250 million and outside finance, insurance and real estate. At least half had a negative net margin, so treat the median as a reference point, not a target. Above zero means a profit; how far above depends on the industry, the business model and how much it invests in growth.
Source: Ataski analysis of SEC Financial Statement Data Sets (FY2025 10-K filings)
What is the difference between net profit margin and operating margin?
Operating margin stops at the operating result, before interest, tax and other income or expense. Net profit margin includes them, so a company with debt or a large tax charge can have a healthy operating margin and a thin net margin.
Can net profit margin be negative?
Yes. When total expenses exceed revenue, net income is a loss and the margin is negative: each dollar of sales costs more than a dollar to earn.
Is net profit the same as cash flow?
No. Net profit counts revenue when it is earned and costs when they are incurred; cash flow counts money when it moves. Depreciation, customers paying late and stock bought ahead of sales all separate the two.