What a margin measures
A profit margin is profit divided by revenue, expressed as a percentage. It tells you how many cents of every dollar of sales the company keeps as profit at a given level of the income statement. Three margins are standard:
- Gross margin — after cost of goods sold (COGS).
- Operating margin — after COGS and operating expenses (R&D, S&M, G&A).
- Net margin — after everything: COGS, operating expenses, interest, taxes.
Compute gross margin for any ticker — with revenue and COGS auto-filled from filings — using the profit margin calculator.
Gross margin — the cost of producing the product
Gross Margin = (Revenue − COGS) ÷ Revenue. COGS captures the direct cost of producing or buying what the company sells: raw materials, direct labour, manufacturing overhead, the wholesale cost of resale goods. Gross margin is the cleanest measure of unit economics — does the product itself produce profit before any overhead?
Software companies often show gross margins of 70–85% because the marginal cost of shipping one more software seat is near zero. Grocery retailers operate in the 25–30% range. Refiners and commodity traders can run 5–15%. Comparing gross margins across unrelated industries is meaningless; comparing them across peers is highly informative.
Operating margin — after the rest of running the business
Operating Margin = Operating Income ÷ Revenue. Operating income subtracts research & development, sales & marketing, and general & administrative costs from gross profit. It captures profitability of the core business operations before financing decisions and tax. This is the margin most analysts focus on when comparing operational efficiency between companies in the same industry. For the income-statement line item that bundles much of that overhead, see SG&A expense explained.
Net margin — the bottom line
Net Margin = Net Income ÷ Revenue. Net margin subtracts interest expense, tax, and any one-off items below the operating line. It is the share of revenue that ends up belonging to common shareholders. Net margin captures both operational performance and capital structure — a company with high operating margin but heavy debt can still show a thin net margin.
Net margin times revenue equals net income — the same number that drives the EPS calculation.
Margin vs markup — easily confused
Margin is profit as a fraction of revenue; markup is profit as a fraction of cost. They are different fractions of different denominators. A 50% markup (cost $1, sell $1.50) is only a 33% margin (profit $0.50 ÷ revenue $1.50). The two are routinely conflated — check what a source means before comparing.
Related concepts and tools
- Profit margin calculator — auto-fills revenue and COGS for any ticker.
- SG&A expense explained — selling, general & administrative costs and the SG&A-to-revenue ratio.
- EPS explained — net margin × revenue = net income, the EPS numerator.
- Top companies by revenue — the denominator of every margin.
- Top companies by earnings — net margin times revenue, ranked.
For revenue and earnings history of any specific company, open its company hub.