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Metric · Margin

Return on Sales (Net Margin) Explained

Return on sales (also net margin) relates net income to revenue. It shows how many cents of every euro of revenue actually remain as profit, after all costs, interest and taxes.

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Updated 20266 min read
Formula
Net margin = Net income ÷ Revenue × 100
> 10%Strong net margin
4–10%Moderate net margin
< 4%Weak net margin
Guideline values, industry-dependent, illustrative

The formula in detail

The components of the formula at a glance.

Numerator
Net income
The after-tax profit from the income statement.
Denominator
Revenue
Revenue from the core operating business.

Calculator

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Result net margin
Moderate net margin
8.0 %
1
A net margin above 10% is considered strong in many industries and points to an efficient, low-cost-intensity business model.
2
A margin below 4% is often normal in low-margin industries (e.g. retail), but a warning sign in margin-rich ones.
3
Unlike EBIT margin, net margin also reflects interest expense, taxes and one-off items. It's the 'last step' of the margin cascade.

Used in these strategies

Magic Formula: Value + QualityGood companies at cheap prices: two factors, one score.Dividend Quality: 4 FactorsFour factors against the dividend trap: continuity, coverage, yield, growth.

Frequently asked questions

As a rough guide, above 10% counts as strong and below 4% as weak. The industry-typical norm varies considerably between, e.g., retail and software.
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Not investment advice. This explanation is for informational purposes only and does not constitute a recommendation to buy or sell securities.

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