Operating, Gross & Net Profit Margins Explained
A profit margin is the share of revenue a company keeps as profit, expressed as a percentage. There are several margins, each measured at a different point in the income statement — together they show where money is made and lost.
The three margins
- Gross margin = (revenue − cost of goods sold) ÷ revenue. What's left after the direct cost of producing the goods or services.
- Operating margin = operating profit (EBIT) ÷ revenue. Profit after running costs (salaries, overheads) but before interest and tax — a clean read on core operating efficiency.
- Net margin = net profit ÷ revenue. The bottom line, after everything including interest, tax, and one-offs.
What margins tell you
Rising margins mean a company is keeping more of each rupee of sales — a sign of pricing power or cost control. Margins vary hugely by industry: software runs very high margins, retail and commodities run thin ones. The useful comparison is a company against its own history and its sector peers, not an absolute number.
Getting the data
Revenue, operating profit, and net profit are all in each financials row, so you can compute any margin yourself. Note that gross margin needs cost-of-goods-sold, which isn't separately filed by every company.